The FDIC has continued to implement Title II of the Dodd-Frank Act, finalizing another rule in a series designed to create the U.S. “orderly-liquidation authority” (OLA) for resolving systemic firms. This rule is part of a continuing series designed to build OLA into a robust resolution process for even the most complex systemic firms so that taxpayer support is not required and, as a result, moral hazard is reduced and, perhaps, even eliminated altogether in the U.S. However, doing so is a complex challenge, and the FDIC here tackles only some outstanding issues, deferring action on others (e.g., how “bridge” entities would function) for future rulemakings. Among the issues addressed here is the treatment of insurance companies that come under OLA, with the FDIC continuing to preserve its rights in ways likely to be of concern to state guaranty associations otherwise charged with handling the failure of covered insurers. The final rule retains a tough approach to the compensation of senior executives or directors at failed firms, giving the FDIC broad authority to seek recoupment. The final rule also attempts to better meet the Dodd-Frank requirement that nothing in OLA should undermine secured claims.
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