February 02, 2016

Compliance Week interviews John Beaty on proposed OCC recovery plan rule

2 min

Compliance Week interviewed Venable partner John Beaty in a February 2, 2016 article on a new proposal by the Office of the Comptroller of the Currency (OCC) involving recovery planning for banks and other financial institutions. Under the proposed rule, OCC examiners will assess the appropriateness and adequacy of a bank’s ability to handle a variety of risk factors surrounding business interruptions, cybersecurity, and leadership succession.

"The resolution planning process has given banks a way to manage the process of articulating a comprehensive overview of what could happen if certain scenarios occur," said Beaty. Resolution planning is more difficult than the recovery process because "many of the people in the resolution planning process believe that their banks are not going to fail and have a hard time coming up with rationales for why they could. Also, banks don't want to signal to their regulators and shareholders that they have a particular weakness." He added that recovery planning is easier "because you are constantly modeling and trying to develop plans for things that could be anticipated." Nevertheless, "it does add a layer of complexity and effort and burden if you are already addressing all of the issues that fit into a recovery plan."

Beaty continued, "At what point are you just spending so many resources to develop plans that you stop being able to do the work? You have a board of directors with so many chiefs reporting directly to it instead of the CEO that it is making organizations more unwieldy and increasing risk…When have we done enough and are we going to have to wait to be criticized in an exam to know whether we have done enough?"

Beaty said he expect many banks to use the same team for recovery and planning. "It makes so little sense to have two teams, because you are talking to the same people, are getting the same information, and are focused on the same organizational structure." He also advised banks to plan to spend resources. "It is a budgeting process. You need to factor in that this will be a difficult document to generate. Coordination among different parts of the bank requires some very senior-level commitment. Make sure whoever is running the project has sufficient authority to get attention from other senior management officials. It could be someone reporting to the CEO or the senior management committee, but it can’t be someone much lower or they are not going to get the resources they need."