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Resolution Authority

Friday, September 14, 2012

FDIC’s Martin Gruenberg on Living Wills

In remarks to the American Banker Regulatory Symposium, FDIC Acting Chairman Martin Gruenberg discussed the progress being made at the FDIC and the Federal Reserve on the resolution plans, or “living wills,” mandated by the Dodd-Frank Act.

Title II of the Dodd-Frank Act enables the FDIC to resolve an insured depository institution, its parent holding company, and any affiliate as well as other non-bank systemically important financial institutions (SIFIs).

The FDIC has been working over the past two years to develop the strategic and operational capability to carry out this new authority.

In addition, Title I of the Dodd-Frank Act requires bank holding companies with more than $50 billion in assets and other firms designated as systemic to develop living wills. These firms are required to demonstrate how they could be resolved under the bankruptcy code without disruption to the financial system and the economy. Title I makes clear that under the Dodd-Frank Act, bankruptcy is the option of first recourse. Only in extraordinary circumstances would a Title II orderly liquidation be considered.

The FDIC has already adopted two rules regarding the resolutions plans. The first, jointly issued with the Federal Reserve, requires bank holding companies with total consolidated assets of $50 billion or more, and certain nonbank financial companies that the Financial Stability Oversight Council (FSOC) designates as systemic, to develop, maintain, and periodically submit resolution plans to the Federal Reserve and the FDIC.

In addition, in a second rule the FDIC also required any FDIC-insured depository institution with assets over $50 billion to develop, maintain, and periodically submit plans outlining how the FDIC would resolve it through the FDIC’s traditional resolution powers under the Federal Deposit Insurance Act.

Gruenberg noted the first resolution plans were submitted in early July by the nine largest companies with non-bank assets of over $250 billion and are currently being reviewed by the FDIC and Federal Reserve.

Read Gruenberg’s full remarks.

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