At its board meeting today, the FDIC proposed two clean-ups to current systemic regulation, the most significant of which addresses how the agency will handle contracts of systemic holding company subsidiaries in a receivership. Building on the rules implemented to date to create the orderly-liquidation process mandated by Dodd-Frank (see Client Reports in the RESOLVE series), the NPR would generally assure service providers and similar entities that their contracts will be honored in the resolution process (e.g., by the bridge institution established to separate ongoing operations from the failed holding company). Doing so protects both systemic operations like payment services and, the FDIC believes, reduces contagion risk and resolution cost. The approach reflects industry comments throughout the development of the systemic-resolution process, although the degree to which it mirrors the Bankruptcy Code will be among the more contentious questions in comments.
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