In addition to proposing a new regulatory regime for systemically-significant institutions, the Administration has also detailed a new way to handle systemic firms if they falter. The FDIC or SEC would run this resolution regime under Treasury’s direction, with broad authority to provide a wide array of rescue and restructuring options. To address assertions that the bill would lead to a class of bank holding companies (BHCs) with an implicit federal guarantee, the bill stipulates that resolutions should not only be at the least-possible cost, but also consider potential moral-hazard implications. The resolution regime could also expose big derivatives counterparties to significant loss. Nevertheless, the powers provided are sweeping and the regulators are also directed to ensure no adverse financial-system or macroeconomic impact from a big-BHC problem, suggesting that whole scale rescues without investor loss could still occur. The new resolution system would be funded by retroactive assessments on larger BHCs. In addition to the new resolution regime, the Administration proposal would also give Treasury more control over any Federal Reserve emergency liquidity or rescue decisions.
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