The FDIC has issued an interim final rule (IFR) finalizing certain aspects of the “orderly liquidation authority” (OLA) mandated by the Dodd-Frank Act as the agency considers how to handle any future systemic resolutions. As authorized by the new law, the IFR permits the FDIC to pay certain creditors more than they would get under a bankruptcy proceeding, but the preamble makes clear that the FDIC would do this rarely and only for creditors or other interested parties when additional payments ensure continuing operations of a failed firm that facilitates orderly liquidation. A key feature of OLA as opposed to bankruptcy is the power to create a “bridge” institution, and the IFR seeks also to clarify how obligations would transfer from a receivership to a bridge, should the FDIC decide to create one. However, numerous questions remain that could complicate judgment about the risk of doing business with a firm that could come under OLA, possibly increasing funding and related costs for these firms and exacerbating stress as an OLA-eligible firm falters. These uncertainties in particular surround who might get an additional payment under OLA, how collateral will be valued and the status of contingent resolutions, but significant questions also remain about how non-bank financial companies might be addressed. As a result, the FDIC is continuing to consider this resolution framework, seeking additional guidance even on questions finalized in this rule. Until the IFR is finalized, the OLA regime outlined in the IFR will guide any systemic resolution.
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