Crisis Management Groups

KA 8.1 Home and key host authorities of all G-SIFIs should maintain CMGs with the objective of enhancing preparedness for, and facilitating the management and resolution of, a cross-border financial crisis affecting the firm. CMGs should include the supervisory authorities, central banks, resolution authorities, finance ministries and the public authorities responsible for guarantee schemes of jurisdictions that are home or host to entities of the group that are material to its resolution, and should cooperate closely with authorities in other jurisdictions where firms have a systemic presence.

Essential criteria

EC8.1 If the jurisdiction under review is home jurisdiction of one or more G-SIFIs, a CMG is established and maintained for each such G-SIFI which includes the authorities with a role in resolution of the G-SIFI and a policy, process and criteria are maintained for determining which jurisdictions are host to entities that are material for a group-wide resolution of the firm and should be represented in the CMG.

Description and findings re EC8.1

DFA. In line with the policy framework for addressing the systemic and moral hazard risks associated with systemically important financial institutions—as developed under the oversight of the FSB and endorsed by G20 Leaders in November 2010—the U.S. authorities have

established CMGs for the eight U.S. institutions that have been identified as G-SIBs, i.e. JP Morgan Chase, Citibank, Bank of America, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, State Street and Wells Fargo.²⁰⁰

Membership of the U.S.-based G-SIB CMGs includes the FDIC; the FRB and relevant Federal Reserve Bank; the OCC (for G-SIBs that that have significant nationally chartered banks); and the SEC (for G-SIBs with large broker-dealer activity)—the U.S. Treasury, however, is not represented, despite its role in the “three keys” process and the reference in KA 8.1 to finance ministries. Host authorities that participate in the CMGs include supervisory authorities, central banks, resolution authorities, and deposit guarantee schemes from jurisdictions in which U.S. G-SIBs have

significant activities or assets. CMG membership is reviewed annually by the FRB, in consultation with the FDIC. Membership criteria are not explicitly defined but in practice membership is based on the relative importance of the local activities for the firm as a whole (e.g. in terms of assets and revenues).

In addition to the CMGs for the afore-mentioned G-SIBs, the authorities have established CMGs for two G-SIIs, i.e. American International Group and Prudential Financial. For both firms, the FSOC determined that material financial distress these firms could pose a threat to U.S. financial stability and hence, that both firms should be subject to supervision by the FRB and enhanced prudential standards.²⁰¹ CMG membership comprises the FIO, the Federal Reserve System, the

200 The 2014 update of the list of G-SIBs can be found here, http://www.financialstabilityboard.org/2014/11/2014-update-of-list-of-global-systemically-important-banks/. It should be noted that the CMG for Wells Fargo solely comprises US authorities, in view of the limited cross-border activities of the bank.

201 DFA Section 113.

FDIC, relevant state insurance commissioners and international insurance regulators, foreign supervisors and resolution authorities. The central membership criterion is the materiality of the firm in the state or foreign country.

The FSOC has also determined that, due to the systemic implications of a potential failure, MetLife shall be subject to supervision by the FRB. MetLife brought an action pursuant to DFA section 113 (h) in the U.S. District Court for the District of Columbia for the rescindment of this final determination in January 2015. The outcome of the law suit is pending. In view of the pending procedure, the establishment of a CMG for MetLife is expected to be initiated at the earliest in 2016.

Banking. The FDI Act does not include specific statutory provisions that relate to CMGs.

State Insurance. There are no specific statutory provisions in state law regarding CMGs of insurance companies.

Findings. The establishment of CMGs has provided the U.S. authorities with important fora for elucidating aspects of the U.S. resolution regime under DFA and relevant host regimes. For the G-SIBs, CMGs have allowed the agencies to disseminate firms’ recovery strategies; discuss cross-border resolution issues (e.g. legal rights, duties and obligations under the local laws of host jurisdictions, actions that can be taken by host authorities to facilitate continued access to financial market infrastructures); and to discuss DFA Title II resolution strategies (with the latter gravitating around the FDIC’s SPE strategy) and steps to improve resolvability (as guided by the FDIC’s firm-specific resolvability assessments). Moreover, recent CMGs included preliminary discussions on the nature, amount and distribution of gone-concern loss absorbing capacity that may be required in a Title II resolution to recapitalize the relevant firms. For the G-SIIs, whose CMGs were only established in 2014, discussion topics included the recovery and resolution planning process, cooperation matters and matters pertaining to information sharing.

EC8.3 If the jurisdiction under review is the home jurisdiction of one or more G-SIFIs, it has processes to ascertain which jurisdictions that are not represented in the CMG assess the local operations of the G-SIFI as systemically important to the local financial system. There is a documented process for cooperation, or other evidence of efforts to cooperate with relevant authorities in those jurisdictions that have been identified through this process.

Description and findings re EC8.3

DFA. While there is no formalized process in place to assess the systemic presence of G-SIFIs’

operations in non-CMG host jurisdictions, foreign operations of U.S.-based G-SIBs are reviewed as part of the FBAs approach to enterprise-wide supervision. The FBAs have established robust processes for maintaining a comprehensive understanding of firms’ structures, their material activities, corporate governance arrangements and risk management programs—both within the U.S. and abroad.²⁰²

Moreover, the agencies have taken a variety of steps to facilitate cross-border cooperation with host supervisors, including via establishment of colleges of supervisors that, generally speaking, have a broader range of participants than CMGs. The FBAs share information bilaterally with home and host supervisors, either on the basis of formal arrangements (such as memoranda of understanding) or in response to ad hoc requests. The legal framework allows the FBAs to share relevant supervisory information with foreign banking supervisors, even in the absence of formal arrangements (e.g. memoranda of understanding), provided that the recipient itself is subject to

202 See the detailed assessment of observance of the Basel Core Principles for Effective Banking Supervision for further details on the FBAs approach to consolidated supervision (link will be added).

confidentiality requirements (also see KA12).

In the case of G-SIIs, there is also no formalized process in place to assess the systemic presence of G-SII operations in non-CMG host jurisdictions. The domiciliary state insurance commissioners have established colleges of supervisors for all insurance groups that meet the International Association of Insurance Supervisors’ definition of an internationally active insurance group (IAIG), including for the FSOC-designated U.S.-based G-SIIs.

Prior to the establishment of CMGs, supervisory colleges—organized in coordination with NAIC—have been used as a forum for preliminary discussions on crisis preparedness and crisis management arrangements.

While there is limited experience with the functioning of the CMGs for the two G-SIIs, the inaugural meetings that took place in Q4-2014 were considered helpful to foster a dialogue on issues pertaining to recovery and resolution planning. Discussion topics included various aspects related to the recovery and resolution planning process, frameworks for cross-border

cooperation and participants’ legal authority to share relevant information. From the U.S.

perspective, state and federal authorities involved in the supervision of insurance firms have adequate powers to share information with foreign supervisory authorities in order to coordinate preparations for a crisis management and coordination.

Banking. The FDI Act does not include specific statutory provisions that relate to CMGs.

State Insurance. There are no specific statutory provisions in state law regarding the cooperation with non-CMG members.

Findings. There is no formalized process in place to assess the systemic presence of G-SIFIs’

operations in non-CMG host jurisdictions. The CMGs operate in parallel to the supervisory colleges for the U.S.-based G-SIBs and G-SII (with the latter having been identified as IAIGs). The supervisory colleges comprise more members than the CMGs and can help facilitate the

coordination with non-CMG members. Going forward, the U.S. authorities should endeavor to align current practices for cooperation with non-CMG host authorities with the draft guideline for cooperation and information-sharing with host authorities from jurisdictions that are not represented on CMGs,²⁰³ published by the FSB in October 2014.

EC8.4 The jurisdiction under review (if it is not itself the home jurisdiction) participates in the CMG for one or more G-SIFIs when invited.

Description and findings re EC8.4

DFA. The FBAs, together with the relevant state supervisors, participate in CMGs for non-U.S. G-SIBs. Inter alia, this relates to CMGs for G-SIBs from France, Germany, Japan, Spain, Switzerland and the United Kingdom. On behalf of the U.S. authorities, participants include the FDIC; the Federal Reserve System; the OCC and relevant state supervisors. Relevant state insurance commissioners²⁰⁴ and international insurance regulators also participate in CMGs for foreign G-SIIs.

The U.S. authorities have not declined any invitations to participate in CMGs of foreign G-SIBs and G-SIIs.

203 http://www.financialstabilityboard.org/wp-content/uploads/c_141017.pdf.

204 I.e. the state insurance commissioners of California and Minnesota for the CMG for Germany-based Allianz; the commissioner of New York in the CMG for France-based AXA; and the commissioner of Michigan in the CMG for UK-based Prudential.

Banking. The FDI Act does not include specific statutory provisions that relate to CMGs State Insurance. There are no specific statutory provisions in state law regarding the participation in CMGs for foreign insurance companies.

Findings. The U.S. federal and state authorities participate in foreign CMGs when invited.

Assessment of KA8

Comments The establishment of CMGs for the U.S.-based G-SIBs and two of the three G-SIIs (a CMG for MetLife has not yet been established), in line with international commitments, has provided the U.S. authorities with important fora for enhancing the preparedness for, and facilitating the management and resolution of, cross-border distress. The U.S. Treasury, however, is not represented, despite its role in the “three keys” process and the reference in KA 8.1 to finance ministries. Existing modalities for cross-border coordination could be further strengthened via the development of explicit CMG membership criteria, together with arrangements for cooperation and information-sharing with host authorities that are not represented on CMGs—with the latter including the development of consistent criteria for assessing the systemic presence of local operations in non-CMG host jurisdictions.