WASHINGTON — Federal regulators offered more refined instructions Monday to early filers of resolution plans for when they submit second drafts of their "living wills" later this year.

Eleven companies and their subsidiaries were the first test cases in 2012 of federal efforts to get behemoths to plot out how they would be wound down in a failure and strategize on how to make their operations more resolvable. But the early regulatory guidelines for submitting the initial drafts were general.

Following their review of the first round of plans, the Federal Deposit Insurance Corp. and Federal Reserve Board offered more details on what they expect from the 11 firms the second time around, and extended the deadline for follow-up reports to October. (The previous deadline was July.)

Among details now sought by regulators from firms is how a wind-down would deal with certain presumed challenges in a resolution. Those include the obstacles posed to a resolution of a firm having multiple material entities becoming insolvent, the issues arising from a foreign jurisdiction ring-fencing assets of a firm’s operations abroad, how actions by third party providers and counterparties could affect the wind-down and the risks posed by insufficient liquidity.

The new guidance — which does not appear to apply to the dozens of firms still yet to submit their first living will drafts — also calls on the 11 companies to provide sharper details on the bankruptcy process, including how a firm would determine if a bankruptcy is needed and how it would follow the step-by-step process to execute the bankruptcy.

"The narrative" of the resolution plan "should contain an indicative description of the process the covered company would undertake to identify the need to commence a bankruptcy case and a general description of the steps it could be expected to take to progress through bankruptcy, including pre-filing actions and decisions, filing, bankruptcy administration actions and developing an exit strategy," the two agencies said.

Under the Dodd-Frank Act, the Fed and FDIC must develop standards for and review annual plans submitted by bank holding companies with over $50 billion in assets as well as other firms considered "systemically important." Plans are essentially a how-to guide on a financial institution’s bankruptcy, but can also be used by the FDIC in the development of a new resolution facility established by Dodd-Frank for systemically risk conglomerates.

The law authorizes regulators to critically evaluate living wills, giving them power ultimately to force structural changes at a firm with a subpar resolution plan. Although regulators had signaled there would no punitive action taken with respect to the first round of drafts last year, their guidance for 2013 plans indicates companies will now be required to make corrections to wills identified as inadequate.

"If, following such a review, the agencies jointly determine that a plan is not credible or would not facilitate an orderly resolution of the covered company under the bankruptcy code, the board and the FDIC will jointly notify the covered company in writing of such determination," the agencies said. "Such notice will identify the aspects of the plan that the board and the FDIC jointly determined to be deficient and request the resubmission of a plan that remedies the deficiencies of the plan."

The guidance, which was issued separately for U.S.- and foreign-based firms required to submit living wills, said a covered company must "state what steps" it "is taking or proposes to take to remediate or otherwise mitigate the identified weaknesses and impediments" to resolution.

The regulators also instructed the firms to look more closely at what material entities they consider to be "essential to the continuation of" core business lines and that could affect the financial system as a whole.

"If the abrupt disruption or cessation of a core business line might have systemic consequences to U.S. financial stability, the entities essential to the continuation of such core business line should be considered for Material Entity designation," the guidance said.

The Fed and FDIC had formed the initial group of filers subject to the Dodd-Frank plans that reported in 2012 based on a threshold of their nonbank assets. Generally, companies fell in the first group if they had at least $250 billion of total nonbank assets. (Foreign firms had to file early if they have at least $250 billion in total U.S.-based nonbank assets.)

The first group to file included five of the largest U.S. firms and four foreign companies that handed in their first drafts in July. They were Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS. Bank subsidiaries of B of A, Citi, Goldman Sachs, JPMorgan Chase and Morgan Stanley also filed separate resolution plans at that time with the FDIC. The parent firms and main bank subsidiaries for Bank of New York Mellon and State Street filed initial plans on Oct. 1.

Companies with smaller or less complex operations face later deadlines of July 2013 or December 2013 depending on their amounts of nonbank assets.

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