FDIC Delays Action on Dismantling Systemically Risky Firms

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Sept. 27, 2010.

The Federal Deposit Insurance Corporation has opted to delay voting on an initial rule that would have begun to outline how the government plans to implement a provision within the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to the dismantling of large, systemically-important firms.

The delay will allow for consultation with the new Financial Stability Oversight Council, and a vote on the initial rule is expected over the short term.

FDIC Chairman Sheila Bair told a September 27, 2010, meeting that the agency is looking at how to provide greater clarity and certainty regarding key components of the resolution authority, and ensuring that the process reflects the Dodd-Frank mandate of transparency.

“It is important to move ahead with rules to make clear how the orderly liquidation process would be implemented to restore greater market discipline and promote clear understanding among shareholders and unsecured creditors that they, not taxpayers, are at risk,” Bair said.

Bair added that given the importance of the new liquidation authority, comments on the broader questions posed in the FDIC resolution authority proposal will help with the crafting of a broader regulation to be proposed early next year.

In other business the FDIC voted to require that banks hold 5 percent of the asset-backed securities on their books, beginning Jan. 1, 2011. “This rule has been in process for nearly a year, and the industry should have no problem adjusting to it by the time the safe harbor expires at the end of the year,” Bair said.