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Thursday, May 10, 2012

FDIC Describes Bank Failure Plans

Acting Chairman of the FDIC, Martin Gruenberg, spoke today at the Federal Reserve Bank of Chicago Bank Structure Conference.

The Dodd-Frank Act gave the FDIC the authority to place the holding company or affiliates of an insured institution or any other non-bank financial company into an FDIC receivership to avoid systemic consequences.

Gruenberg described the FDIC’s strategy for resolving a large systemically important financial firm:
The FDIC’s resolution strategy has three key goals. The first is financial stability, ensuring that the failure of the firm does not place the financial system itself at risk. The second is accountability, ensuring that the investors in the failed firm bear the firm’s losses. The third is viability, converting the failed firm through the public receivership process into a new, well-capitalized and viable private sector entity.

The most promising resolution strategy from our point of view will be to place the parent company into receivership and to pass its assets, principally investments in its subsidiaries, to a newly created bridge holding company.

In summary…the FDIC takes control of the failed firm at the parent holding company level and establishes a bridge holding company as an interim step in the conversion of the failed firm into a new well-capitalized private sector entity. We believe this strategy holds the best possibility of achieving our key goals of maintaining financial stability, holding investors in the failed firm accountable for the losses of the company, and producing a new, viable private sector company out of the process.
Read Greunberg's full speech.

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