FDIC Chair Martin Gruenberg Discusses Bankruptcy and the Orderly Liquidation of SIFIs

Speaking at the Peterson Institute for International Economics in Washington, D.C., FDIC Chair Martin Gruenberg emphasized the "impressive and somewhat underappreciated" progress of the FDIC in implementing post-crisis regulatory reforms concerning the bankruptcy and resolution of systemically important financial institutions ("SIFIs").

First, Chair Gruenberg discussed efforts by the FDIC to strengthen the process for resolving SIFIs under the Bankruptcy Code, and noted that the FDIC has and will continue to provide guidance to SIFIs regarding the deficiencies in their Dodd-Frank resolutions plans (or "living wills"). In particular, he offered guidance regarding how SIFIs should demonstrate in their "living wills" that distinct legal entities within their corporate structure could be separated from the parent entity in bankruptcy, and noted that SIFIs must:

• map material legal entities to their respective business lines;
• address cross-guarantees and potential cross-defaults; and
• provide for the continuity of essential information technologies and other services.

Second, Chair Gruenberg discussed efforts by the FDIC to develop the operational capabilities to carry out resolutions under Dodd-Frank's orderly liquidation authority. In particular, he discussed the following topics:

• Bridge Financial Companies. The FDIC adopted a "single-point-of-entry" approach that would place parent companies into receivership while establishing a bridge financial company to hold and manage critical operating subsidiaries temporarily;
• Liquidity and Capital. The FDIC continues to work with the Basel Committee on Banking Supervision and the Financial Stability Board to implement a total loss absorbing capacity ("TLAC") requirement for SIFIs, and anticipates a rulemaking by the Board of Governors of the Federal Reserve System (the "FRB") requiring SIFIs to maintain a minimum amount of long-term unsecured debt outstanding at the holding company level;
• Qualified Financial Contracts (or "QFCs"). The protocol issued by the International Swaps and Derivatives Association in November 2014 generally has been successful in addressing legal uncertainty about the ability of U.S. prudential regulators to stay the early termination of QFCs in foreign jurisdictions, and the FDIC anticipates that the FRB will codify compliance with this protocol.
• Cross-Border Coordination. Chair Gruenberg stressed the importance of maintaining a strong relationship with U.K. regulators, and discussed recent efforts by the FDIC to engage with European regulators regarding the Single Resolution Mechanism for the resolution of SIFIs in Europe.

See: Chair Gruenberg's Speech.