Dodd-Frank News Center

GAO issues report on GSIB actions to mitigate obstacles to orderly resolution

This story appeared in Bank Digest.

The Government Accountability Office has issued a report regarding actions U.S. global systemically important bank holding companies took to mitigate financial and legal obstacles they could face under the Bankruptcy Code that could undermine an orderly resolution. The GAO focused on five U.S. GSIBs with large portfolios of derivatives (because of resolution obstacles such financial contracts pose).

According to the report, the five U.S. GSIBs in the GAO's review incorporated procedures and other controls in their 2017 resolution plans to mitigate financial and legal obstacles to orderly resolution under the Bankruptcy Code. In their review, the Federal Deposit Insurance Corporation and Federal Reserve Board found no deficiencies with the GSIBs' 2017 plans.

Most experts the GAO interviewed viewed GSIB controls to mitigate financial obstacles as potentially somewhat effective, but these experts had mixed views on the potential effectiveness of GSIB controls to mitigate creditor challenges and other legal obstacles.

Bankruptcy is the chosen resolution method for SIFIs, says Hoenig

This story appeared in Bank Digest.

Speaking at the George Washington University Law School conference on Financial Stability After Dodd-Frank: Have We Ended Too Big To Fail in Washington, D.C., Federal Deposit Insurance Corporation Vice Chairman Thomas M. Hoenig said that the U.S. and global financial systems are the definition of concentrated risk. Composed of systemically important financial institutions that are highly leveraged, heavily reliant on wholesale funding, and unduly interconnected, when even one of these institutions fails, its impact on world economies can be devastating.

Financial Company Bankruptcies and Systemic Risk Examined

This story appeared in Bank Digest.

Although the Government Accountability Office has recommended that the Financial Stability Oversight Council should consider the impact of changing the role of regulators and the treatment of qualified financial contracts in financial company bankruptcies on the stability of the financial system, the FSOC has stated that it would be premature for it to consider proposals to change the Bankruptcy Code.

House Panel to Release MF Global Report with Recommendations for Regulatory Change

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and Author of Jim Hamilton's World of Securities Regulation.

The House Financial Services Subcommittee on Oversight and Investigations, chaired by Rep. Randy Neugebauer (R-TX), is expected to report the results of its year-long investigation into the collapse of MF Global in the next few weeks. According to Chairman Neugebauer, the investigation is essentially an autopsy of how MF Global came to its ultimate demise and what policy changes need to be made to prevent similar customer losses in the future. He emphasized the need to restore confidence and integrity to the futures markets and send a strong signal to customers that their accounts are safe and secure.

Fed Finalizes Rule on Resolution Plans

This story appeared in Bank Digest.

The Federal Reserve Board has approved a final rule, with the Federal Deposit Insurance Corp., that implements the resolution plan requirements in the Dodd-Frank Act. The rule requires bank holding companies with assets of $50 billion or more and nonbank financial firms designated by the Financial Stability Oversight Council for supervision by the Fed to submit resolution plans annually to the Fed and FDIC. The plans must describe the company's strategy for rapid and orderly resolution in bankruptcy during times of financial distress. The rule takes effect Nov. 30, 2011. However, resolution plans are to be submitted on a staggered basis, based principally on the size of the company.

Effectiveness of Bankruptcy in Resolving Failed Financial Institutions Examined

This story appeared in Bank Digest.

Pursuant to requirements of the Dodd-Frank Act, the GAO has released a report on the effectiveness of the Bankruptcy Code in resolving certain failed financial institutions on an ongoing basis. Among its objectives, the report addresses: (1) the effectiveness of Chapters 7 and 11 of the Code for facilitating orderly resolutions of failed financial institutions; (2) proposals for improving the effectiveness of liquidations and reorganizations under the Code; and (3) existing mechanisms that facilitate international coordination under the Code and barriers to coordination of financial institution bankruptcies. The GAO reviewed laws, judicial decisions, regulations, data and academic literature on resolutions, and spoke with relevant government officials, industry representatives and experts from the legal and academic communities about the effectiveness of the Code.

Fed Asks for Comments on Resolution-Related Studies

This story appeared in Bank Digest.

The Fed is seeking information that will help it conduct two studies required by the Dodd-Frank Act--one on the resolution of financial companies under Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code and one on international coordination relating to the resolution of systemic financial companies under the Bankruptcy Code and applicable foreign law. Issues include whether amendments to the Bankruptcy Code are needed, whether a special court or panel of masters should be created and how international cooperation can be enhanced.

FDIC Adopts Interim Rule on Liquidating Large Companies

This story appeared in Bank Digest.

The Federal Deposit Insurance Corp. has announced the approval of an interim final rule defining how the agency will treat some creditors' claims under the orderly liquidation authority covering large financial companies. Under the Dodd-Frank Act, the FDIC can be appointed the receiver for a large, failing financial company if the failure of the company and its liquidation under the Bankruptcy Code or other insolvency procedures would pose a significant risk to U.S. financial stability. The interim rule is little changed from the proposed rule published Oct. 19, 2010, the agency said.

Bachus Requests Hearing on Lehman Collapse

This story appeared in Bank Digest

Rep. Spencer Bachus, R-Ala., has sent a letter to Financial Services Committee Chairman Barney Frank, D-Mass., calling for an investigatory hearing to be held on the bankruptcy of Lehman Brothers, whose collapse contributed to the financial crisis in the fall of 2008. As Ranking Member on the Committee, Bachus called for the hearing on new revelations detailing potential accounting fraud at the investment bank and lax oversight by federal regulators. Bachus said the report from Lehman Brothers' court-appointed bankruptcy examiner shows a failure of government regulators, including the Federal Reserve Board and the Securities and Exchange Commission, to act on evidence of accounting gimmicks used to hide the company's debt and mask its insolvency. “This report casts additional doubts on the ability of the Federal Reserve to effectively perform the expanded supervisory responsibilities called for in House and Senate regulatory reform bills,” Bachus said.

Fed Grants Regulatory Reporting Relief

This story appeared in Bank Digest.

The Federal Reserve Board has granted temporary relief from the agency’s regulatory reporting requirements for bank holding companies to CIT Group Inc., New York, N.Y. The bank holding company sough the relief so as to include information regarding its debt restructuring process in its regulatory reports and filings with the Securities and Exchange Commission.