Drill Down on FDIC Resolution Authority

The FDIC hosted the first of a series of roundtables regarding the implementation of the financial reform bill today. This roundtable focused on the new resolution authority under the FDIC. Chairwoman Bair led a discussion on the framework of the resolution process, the treatment of creditors, and the creation of living wills. As the implementation phase of the Dodd Frank Wall Street Reform and Consumer Protection Act gets under way, agencies will begin to have sessions like today’s roundtable to discuss the different aspects of the bill and begin the rulemaking process. Awareness of these rules and how the regulations will impact your business is of the utmost importance in today’s changing regulatory landscape.

Framework of Resolution Authority

The basic framework of the Resolution process calls for the FDIC and the Fed/SEC/ Federal Insurance office (depending on industry), by a 2/3 vote each, recommend to the Treasury Secretary that the FDIC should be appointed receiver for the financial company.

• In consultation with the President, the Treasury Secretary may then appoint the FDIC as receiver for the financial company.
• If the board of directors of the company consents to this appointment, the FDIC is immediately appointed as Receiver. If the board objects, the Treasury Secretary must petition the U.S. District Court for the District of Columbia for an order authorizing the Secretary to appoint the FDIC as receiver.
• Within 24 hours of appointment of FDIC as Receiver, the Treasury Secretary must provide a written a summary of the basis for the determination, the company’s financial condition, and the effect of exercising the resolution authority to certain members of Congress. The FDIC must then prepare reports for Congress, including information on the company’s financial condition and the FDIC’s plan to wind down the organization.

Living Wills

• Systemically important bank holding companies are required to submit living wills to the Financial Stability Oversight Council, the FDIC and the Federal Reserve for the company’s rapid and orderly resolution in the event of material financial distress.
• These living wills must include full descriptions of the company’s ownership structure, assets, liabilities, and contractual obligations.

Credit Exposure Reports

• Systemically important bank holding companies will be required to submit periodic reports to the Fed, the FSOC and FDIC regarding the nature and extent to which the company has credit exposure to other “significant” nonbank financial companies and “significant” bank holding companies.