Via Electronic Mail

November 30, 2023

Ann E. Misback, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue NW.,
Washington, DC 20551

James P. Sheesley, Assistant Executive Secretary
Attention: Comments – RIN 3064–ZA3886
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Re: Notice of Proposed Guidance, Guidance for Resolution Plan Submissions of Foreign Triennial Full Filers; Federal Reserve Docket No. OP–1817; RIN 3064–ZA3886

Ladies and Gentlemen,

The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to comment on the proposed guidance (‘the Proposal”) for resolution plan submissions of foreign triennial full filers (hereafter referred to as the “specified firms”) issued by the Board of Governors of the Federal Reserve System (“Federal Reserve”) and the Federal Deposit Insurance Corporation (“FDIC,” and collectively with the Federal Reserve, the “Agencies”) in connection with the requirements of Section 165(d) of the Dodd-Frank Act.2 The Proposal, when considered in combination with other recent proposals by the banking agencies, would have a deleterious impact on the ability of foreign banking organizations (“FBOs”) to support the U.S. capital markets and broader economy, reducing an important source of diversity and competition for market participants and end-users.

The Proposal does not reflect that the specified firms have significantly reduced their risk profile and size over the past decade. The Proposal also fails to appropriately account for the heightened capital, liquidity, and resolution-related resource requirements that the specified firms are already subject to, and the planned capital increases resulting from the Agencies’ recent proposals implementing the Basel III Endgame reforms3 and the effects of their long-term debt (“LTD”) proposal.4 It also does not fully consider heightened home country capital, liquidity, governance, and resolution requirements, including total loss absorbing capacity (“TLAC”) requirements for the specified firms’ parent entities (in addition to local TLAC at the U.S. intermediate holding company or “IHC” level for many specified firms). The specified firms are also subject to robust home country resolution planning requirements, which would ensure that that the global firm can be effectively resolved with minimal impact to the firm’s U.S. operations, in addition to existing U.S. resolution planning requirements. As a result, the specified firms pose a much-reduced risk to the U.S. financial system and are far better positioned to ensure an orderly resolution of their U.S. operations should the need arise.

The Proposal does not acknowledge the reduced risk profile of the specified firms. Instead, it advances largely unsupported rationales for reversing a series of recent policy decisions the Agencies made in the Final Guidance for Resolution Plan Submissions of Certain Foreign-Based Covered Companies (the “2020 Final FBO Guidance”),5 proposing stringent new resolution planning expectations that in many instances mirror those that the U.S. GSIBs are currently subject to. A number of these proposed new expectations, which include possible extension of extraterritorial derivatives and trading activities reporting, as well as capital and liquidity pre-positioning, were previously considered by the Agencies in their 2020 proposal (hereafter the “2020 Proposed FBO Guidance”)6 but ultimately rejected following an extensive notice-and-comment process. These added expectations are unnecessary and inappropriate for the reasons we discuss in this letter.

I. Executive Summary

This letter echoes many of the comments SIFMA submitted in response to the 2020 Proposed FBO Guidance.7 SIFMA is also generally supportive of the recommendations submitted by the Institute of International Bankers (“IIB”) in their letter responding to the Proposal, which mirror many of the points that are made below.8 Specifically, we make the following observations and recommendations regarding the Proposal:

• The specified firms play an important role in the U.S. capital markets and have reduced their risk profile in recent years. It would be inappropriate to apply the proposed new expectations to these firms. The specified firms provide an important source of strength and diversity to the U.S. capital markets. Applying heightened resolution planning expectations on these firms would further undermine their ability to support U.S. capital markets activities and is unwarranted given their reduced size and systemic risk profile.
• The Agencies should not adopt onerous and duplicative expectations around a) derivatives and trading activities and b) capital and liquidity adequacy that they recently considered but did not adopt. The Agencies should also tailor guidance for specified firms that do not have IHCs. The Agencies must provide more evidence to support the extension of expectations that they considered but chose not to adopt in the 2020 Final FBO Guidance, as well as the rationale for extending to firms that do not have U.S. IHCs. We recommend that the Agencies not include extraterritorial and duplicative expectations related to specified firms’ trading and derivatives activities in the final guidance, nor that they add redundant resolution-related capital and liquidity adequacy expectations that could reduce the flexibility of the specified firms to deploy resources where needed most during periods of stress. We also recommend that the Agencies tailor the final guidance for specified firms that do not have a U.S. IHC given their different risk profiles and structures.
• The Agencies should work with home country regulators to obtain information on group resolution plans. Instead of requiring specified firms to share detailed assumptions, strategies, and capabilities about their global resolution plan that they may not have access to (as they are often written by their home country regulator) or otherwise be able to share, the Agencies should focus instead on ways to improve cooperation and information sharing with their counterparts in other jurisdictions to obtain the information they need.
• The Agencies should clarify the types of information they will require in relation to non-U.S. “material entities.” The Agencies should also clarify how the concept of a “material entity” will be applied to their parent firm and other non-U.S. affiliates that operate outside the scope of specified firms’ combined U.S. operations (“CUSO”) to ensure that any information requests are aligned with the requirements in the Section 165(d) resolution planning rule.
• The Agencies should a) provide specified firms 12 months following the finalization of the guidance to file their next set of resolution plans and b) also issue a statement by January 1, 2024, providing for an interim extension of the current July 1, 2024, plan submission date to December 31, 2024. In addition, the Agencies should provide additional time for new triennial full filers to come into compliance with the final guidance. SIFMA recommends that the Agencies provide the specified firms 12 months following the finalization of the proposed guidance to file their 165(d) resolution plans to enable them to come into compliance with the revised expectations. The Agencies should also issue a statement by January 1, 2024, that provides for a 6-month interim extension of the filing date from July 1, 2024, to December 31, 2024, given that the specified firms are already working on their 2024 plan submissions. We also recommend that the Agencies provide firms that may find themselves moving into a higher tiering category and thus becoming triennial full filers owing to the Federal Reserve’s recent GSIB Surcharge proposal9 two years to come into compliance with the final guidance.

II. The specified firms play an important role in supporting the U.S. capital markets and have significantly reduced their risk profiles. Imposing enhanced resolution planning expectations on these firms is unnecessary.

a. The importance of FBOs to the U.S. capital markets.

The U.S. capital markets fund 75% of all non-financial U.S. corporate debt and equity financing, meaning that they are crucial drivers of broader U.S. economic activity.10 FBOs play a particularly important role in the U.S. capital markets across all asset classes and activities, comprising 26.2% market share of U.S. equity and 37.2% of U.S. fixed income underwriting year to date. FBOs also comprise 62.5% of primary dealers in the U.S. Treasury markets, making them essential to the functioning of U.S. monetary policy. FBOs are furthermore crucial to the efficient functioning of derivatives markets that are used by corporations, municipalities, and other end-users to manage their risks, comprising 42.5% of registered U.S. swap dealers. In short, FBOs are a critical part of this diversity and support the depth and competitiveness of U.S. markets and play an important role in the broader economy – a role recognized by key policymakers.11

Yet, as SIFMA noted in a research paper in 201912, FBO market share has declined across all product types as has the size of their U.S. operations, a trend that has largely continued since that time. This period coincided with the imposition of enhanced prudential requirements, including IHC-level capital, stress testing, liquidity, and TLAC requirements, and heightened CUSO-level resolution planning and liquidity stress testing requirements for the specified firms. These post-crisis rules were designed largely for bank holding companies with a broader number of legal entities and product mix rather than broker dealers. The consistency, extent, and timing of the FBO broker-dealer decline suggests that this major shift in U.S. regulation likely played an important role (alongside individual bank strategy choices) in the reduction in FBO activity in U.S. capital markets.

The Proposal, in conjunction with other recently released banking agency proposals that would increase risk-based capital requirements for most of the specified firms (particularly in relation to their trading book activities) and extend LTD requirements to those firms not already subject to TLAC requirements, would only exacerbate this trend, making it increasingly difficult for the specified firms to compete in the U.S. capital markets.

b. As the Agencies have previously recognized, the specified firms pose a significantly reduced risk to the U.S. financial system.

Despite recent events that the Agencies reference in the Proposal (see below), the specified firms represent a much-reduced risk to U.S. financial stability than they did prior to 2010 thanks to their reduced size and more robust capitalization and liquidity profiles at both their home and U.S. levels

1 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).
2 Federal Reserve and FDIC, “Guidance for Resolution Plan Submissions of Foreign Triennial Full Filers,” 88 Fed. Reg. 64641 (Sept. 19, 2023).
3 See Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation, “Regulatory Capital Rule: Amendments Applicable to Large Banking Organizations and to Banking Organizations with Significant Trading Activity,” 88 Fed. Reg. 64028 (Sept. 18, 2023).
4 Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation, “Long-Term Debt Requirements for Large Bank Holding Companies, Certain Intermediate Holding Companies of Foreign Banking Organizations, and Large Insured Depository Institutions,” 88 Fed. Reg. 64524 (Sept. 19, 2023). 5 Federal Reserve and FDIC, “Notice of Proposed Rulemaking, Guidance for Resolution Plan Submissions of Certain Foreign-Based Covered Companies,” 85 Fed. Reg. 15449 (Mar. 18, 2020). 6 Federal Reserve and FDIC, “Final Rule, Resolution Plans Required,” 84 Fed. Reg. 59194 (Nov. 1, 2019).
7 SIFMA, Response to 2020 Proposed FBO Guidance, June 4, 2020. Available at: https://www.sifma.org/wp-content/uploads/2020/06/SIFMA-FBO-RRP-Comment-Letter-.pdf (hereafter “SIFMA Response to 2020 Proposed FBO Guidance”).
8 Institute of International Bankers, Comment Letter Response to the Proposal (hereafter “IIB Comment Letter”).
9 Federal Reserve, “Regulatory Capital Rule: Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies; Systemic Risk Report (FR Y–15),” 88 Fed. Reg. 60385 (Sept.1, 2023) (hereafter referred to as the “GSIB Surcharge proposal”).
10 SIFMA, “2023 Capital Markets Fact Book,” July 2023. Available at: https://www.sifma.org/wp-content/uploads/2022/07/2023-SIFMA-Capital-Markets-Factbook.pdf.
11 E.g., Jerome H. Powell, Chairman, Federal Reserve, Opening Statements on Proposals to Modify Enhanced Prudential Standards for Foreign Banks and to Modify Resolution Plan Requirements for Domestic and Foreign Banks (Apr. 8, 2019). Chairman Powell noted that “foreign banks play an important role in our economy. They facilitate commerce, and provide credit and needed investment.”
12 SIFMA, “SIFMA Insights: The Importance of FBOs to U.S. Capital Markets,” April 2019. Available at: https://www.sifma.org/wp-content/uploads/2019/04/SIFMA-Insights-The-Importance-of-FBOs-to-US-Capital-Markets.pdf.