Resolution Planning and Liquidity
Under the Dodd-Frank Act, the largest U.S. banking organizations — Global Systemically Important Banks (G-SIBs) and certain other large firms — must file annual resolution plans (commonly called "living wills") demonstrating they can be resolved in an orderly way under the U.S. Bankruptcy Code without systemic disruption and without government bailouts.
A critical component of these plans is the Resolution Liquidity Execution Need (RLEN) — the amount of liquidity a firm estimates it would need to execute its resolution strategy. Like ILSTs, RLEN calculations effectively set a floor on how much liquid assets (including reserves) a firm must hold. And like ILSTs, the key question is: what sources of liquidity can count toward meeting the RLEN?
The Problem: Minimal Discount Window Horizon
Current resolution planning guidance, as expressed through FDIC and Fed feedback letters, assumes discount window access would be available for only a very limited period — in some interpretations, as few as one to three days after a resolution event. After this brief window, the resolving entity is assumed to have no access to central bank liquidity.
This assumption is extremely conservative relative to historical experience. During the 2008 financial crisis and subsequent stress events, the Fed provided liquidity to resolving and restructuring institutions over extended periods. The assumption of near-immediate loss of access forces firms to hold enormous pre-resolution liquidity buffers in the form of reserves and HQLA, since they cannot assume window access to cover even short-run resolution operating costs.
The Policy Option
Update resolution plan guidance to assume gradual, declining discount window access over an extended post-resolution period — for example, full access in weeks 1–4, tapering to 50% by month 3, and zero by month 6. This would reflect the realistic expectation that regulators managing an orderly resolution would use available tools — including the discount window — to maintain liquidity while operations are wound down or transferred.
Alternatively, guidance could explicitly reference the Fed's Section 13(3) emergency lending authority as a backstop available post-resolution, reducing the requirement that all post-resolution liquidity needs be pre-funded on the firm's own balance sheet.
Scope and Limitation
This option has a relatively narrow scope: it applies only to G-SIBs and similarly complex firms that file detailed resolution plans. For the broader universe of Category II–IV banks that do not file full living wills, RLEN is not directly applicable, and reserve demand reductions from this change would be limited to the largest four to eight institutions.
That said, the G-SIBs collectively hold a disproportionate share of total reserve balances — roughly 40–50% of aggregate reserves despite representing a handful of institutions — so even a narrow change that affects only these firms could produce meaningful aggregate effects.
Narrow scope (G-SIBs only); highly uncertain given the idiosyncratic nature of resolution scenarios and the discretionary nature of post-resolution DW access assumptions.
Political and Legal Complexity
Changes to resolution planning expectations require coordination between the FDIC and the Federal Reserve, both of which review resolution plans. The FDIC in particular has historically maintained conservative positions on discount window reliance during resolution, reflecting its mandate to minimize the deposit insurance fund's exposure. Securing joint guidance that formally expands assumed window access post-resolution may face institutional resistance, making this among the more politically complex options in the regulatory category.