On Friday, November 25, 2011, the Federal Deposit Insurance Corporation (the “FDIC”) and the Department of the Treasury (“Treasury”) issued joint proposed rules to implement the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”) described below. Comments must be received by January 24, 2012.
Title II of the Act establishes an Orderly Liquidation Authority, pursuant to which the liquidation of any “systemically important financial company” would be conducted by the FDIC, as receiver, upon a determination that the financial company’s failure and resolution under otherwise applicable bankruptcy or insolvency laws would have serious adverse effects on the financial stability of the United States. The FDIC has broad powers as receiver in this process, and the Act establishes an Orderly Liquidation Fund (“OLF”) to pay the costs of liquidation. In order to fund the OLF, the FDIC may be required to borrow funds from Treasury. This proposed rule establishes a maximum obligation limitation (“MOL”) on such borrowings.
Under the proposed rule, the FDIC may not issue or incur any obligation if, after giving effect to the issuing or incurring of such obligation, the aggregate amount of such obligations exceeds, as to each financial company, (i) 10 percent of the total consolidated assets of the financial company, based on the most recent financial statement available, during the 30-day period following the date the FDIC was appointed receiver (or a shorter time period if the FDIC has calculated the amount described in clause (ii)), and (ii) 90 percent of the fair value of the total consolidated assets of each financial company that are available for repayment, after the time period described in clause (i).
The proposed rule contains definitions of “fair value,” “most recent financial statement available,” and “obligation,” among others, and those commenting are encouraged to comment on these definitions as well.
Financial companies and other interested persons may comment, and should do so if they think that these rules, or the specifics of the implementation of these rules as published in the notice, will have an adverse effect on their businesses. According to the notice of proposed rulemaking, the form and content requirements for comments will depend upon whether the comment is submitted to the FDIC or to Treasury. Those commenting should review page 72645 of the Federal Register dated November 25, 2011 (Volume 76, Number 227) for instructions.