The Federal Deposit Insurance Corporation approved the final rule on January 17 to require the covered insured depository institution (CIDI) with $50 billion assets or more to submit to the regulator periodic contingency plans for resolution in the event the institution faces bankruptcy. The new final rule is a complement to the separate joint rulemaking with the Federal Reserve approved in September last year.

Also dubbed as the “living will” rule, the regulation will require CIDIs to contemplate their mortality and inform the regulator how to resolve their institution in the most cost effective and efficient manner so that their clients will have access to their money within one business day after the institution's failure. If the failure occurs on a day other than a Friday, clients will have access to their funds in two business days. The plan will also include details on how to maximize the net present value of the return from sale of assets and minimizes the amount of any real loss by the institution's creditors.

“The plans will supplement the FDIC's own resolution planning work with information that would help facilitate an orderly resolution in the event of failure,” it said in the statement. FDIC will act as the receiver when a CIDI faces bankruptcy. The final rule will enable the FDIC to perform its resolution functions by requiring the largest institutions to engage in extensive planning on the best measures to dissolve the institution if it faces illiquidity. The rule will also enhance the regulator's ability to reduce losses to the Deposit Insurance Fund and resolve troubled institutions in a manner that limits any disruption.

At present, 37 insured depository institutions are covered by the rule, with estimated combined assets of $4.14 trillion in insured deposits or close to 61 percent of all insured deposits as of Sept 30, 2011. Previously, the interim final rule, issued together with the Federal Reserve, went into effect on Jan 1, 2012. The regulator said the joint-rule, issued together with the Fed, will remain in effect until it is superseded by the FDIC's final rule effective April 1 this year.

The final rule also includes some modifications in response to comments received, to more closely align the final rule with that of the provision under the Dodd-Frank Act. Section 165(d) in the Act requires non-bank financial companies and bank holding companies that are identified as systemically important to prepare resolution plans for such entities to be resolved in an orderly manner under the Bankruptcy Code.