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Keynote Remarks
by
Jelena McWilliams
Chairman, Federal Deposit Insurance Corporation,
to
2018 Annual Conference of The Clearing House (TCH) and Bank Policy Institute (BPI)
November 28, 2018
Introduction
Good afternoon. I am pleased to join you for today’s conference.
The FDIC has a long and proud history as a resolution authority for banks and insured depository
institutions. During its 85 years, the FDIC has resolved more than 2,700 institutions with assets
of more than $1 trillion and almost $800 billion in deposits. It has developed and adapted its
strategy over time – repeatedly updating its procedures as needed to address each bank failure
and each crisis, since 1933.
The FDIC has continued to refine its resolution tools as it confronted two banking crises in the
past four decades, first in the 1980s and early 1990s, when the agency resolved more than 1,600
institutions, and then recently, from 2008 to 2013, when the FDIC resolved almost 500 failed
banks and thrifts.
These crises resulted in the FDIC adding new tools, ranging from bridge banks to loss-sharing
arrangements, while also adapting to new requirements, such as the mandate that we resolve
banks at the least cost to the Deposit Insurance Fund. And across all these years and thousands
of resolutions, no depositor has ever lost a penny of insured deposits.
Though the agency has a long, established record of successfully handling smaller bank failures,
we recognize the differences and unique challenges associated with resolving larger institutions,
particularly the most complex, globally active financial institutions.
The purpose of my speech today is to discuss our approach to large institution resolution
planning, how we are working to strengthen and streamline this process, and the path forward.
The Goals of Resolution
When framing out an issue like this, it is important to be direct and specific about our goals. The
fundamental goal of resolution should be the same for institutions large or small: enable failure
in the least disruptive manner.
Keynote Remarks
by
Jelena McWilliams
Chairman, Federal Deposit Insurance Corporation,
to
2018 Annual Conference of The Clearing House (TCH) and Bank Policy Institute (BPI)
November 28, 2018
Introduction
Good afternoon. I am pleased to join you for today’s conference.
The FDIC has a long and proud history as a resolution authority for banks and insured depository
institutions. During its 85 years, the FDIC has resolved more than 2,700 institutions with assets
of more than $1 trillion and almost $800 billion in deposits. It has developed and adapted its
strategy over time – repeatedly updating its procedures as needed to address each bank failure
and each crisis, since 1933.
The FDIC has continued to refine its resolution tools as it confronted two banking crises in the
past four decades, first in the 1980s and early 1990s, when the agency resolved more than 1,600
institutions, and then recently, from 2008 to 2013, when the FDIC resolved almost 500 failed
banks and thrifts.
These crises resulted in the FDIC adding new tools, ranging from bridge banks to loss-sharing
arrangements, while also adapting to new requirements, such as the mandate that we resolve
banks at the least cost to the Deposit Insurance Fund. And across all these years and thousands
of resolutions, no depositor has ever lost a penny of insured deposits.
Though the agency has a long, established record of successfully handling smaller bank failures,
we recognize the differences and unique challenges associated with resolving larger institutions,
particularly the most complex, globally active financial institutions.
The purpose of my speech today is to discuss our approach to large institution resolution
planning, how we are working to strengthen and streamline this process, and the path forward.
The Goals of Resolution
When framing out an issue like this, it is important to be direct and specific about our goals. The
fundamental goal of resolution should be the same for institutions large or small: enable failure
in the least disruptive manner.
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That may sound too negative – or too dark – but failure is critical. Markets work best when risk
takers are held accountable: accountable for their gains and accountable for their losses.
If institutions can benefit from the upside of their gains, but put taxpayers on the hook for their
losses, that results in market failure and moral hazard. In such circumstances, institutions – and
their shareholders and counterparties – benefit not from their business decisions but from
political decisions.
Resolution should work to break this cycle and make sure that market discipline is real.
Institutions that are big must be able to fail just like institutions that are small: without taxpayer
bailouts and without undermining the market’s ability to function.
This is no easy task because a large institution’s failure can be so impactful on the market and
innocent third-parties, but it remains the core challenge surrounding large institution failure and
one the FDIC must address.
SIFI Resolution in the United States
The greatest untested resolution challenge comes from the largest, most complex institutions.
Because our fundamental goal for these institutions is that they are able to fail, our first priority
needs to be taking the steps necessary to facilitate orderly resolution of these firms in
bankruptcy.
In the United States, the largest bank holding companies are required by law to submit resolution
plans outlining how they can fail, in an orderly way, under the Bankruptcy Code.
Progress
Through this process, U.S. global systemically important banking organizations – or GSIBs –
have made strides and implemented significant structural and operational improvements that
have enhanced their resolvability in bankruptcy.
They have developed a single-point-of-entry (SPOE) resolution strategy that, if successful,
would enable the functioning of critical operations at the key subsidiaries while the parent enters
what is akin to a prepackaged bankruptcy proceeding. These firms have established clean
holding companies and issued long-term debt to the market so that market participants – and not
taxpayers – bear the risk of loss; and they have identified mechanisms for measuring,
maintaining, and making available timely liquidity to fund operations during this period. They
have taken steps to modify their contracts with service providers and counterparties, and they
have worked to simplify their structures and funding lines to facilitate their strategy.
That may sound too negative – or too dark – but failure is critical. Markets work best when risk
takers are held accountable: accountable for their gains and accountable for their losses.
If institutions can benefit from the upside of their gains, but put taxpayers on the hook for their
losses, that results in market failure and moral hazard. In such circumstances, institutions – and
their shareholders and counterparties – benefit not from their business decisions but from
political decisions.
Resolution should work to break this cycle and make sure that market discipline is real.
Institutions that are big must be able to fail just like institutions that are small: without taxpayer
bailouts and without undermining the market’s ability to function.
This is no easy task because a large institution’s failure can be so impactful on the market and
innocent third-parties, but it remains the core challenge surrounding large institution failure and
one the FDIC must address.
SIFI Resolution in the United States
The greatest untested resolution challenge comes from the largest, most complex institutions.
Because our fundamental goal for these institutions is that they are able to fail, our first priority
needs to be taking the steps necessary to facilitate orderly resolution of these firms in
bankruptcy.
In the United States, the largest bank holding companies are required by law to submit resolution
plans outlining how they can fail, in an orderly way, under the Bankruptcy Code.
Progress
Through this process, U.S. global systemically important banking organizations – or GSIBs –
have made strides and implemented significant structural and operational improvements that
have enhanced their resolvability in bankruptcy.
They have developed a single-point-of-entry (SPOE) resolution strategy that, if successful,
would enable the functioning of critical operations at the key subsidiaries while the parent enters
what is akin to a prepackaged bankruptcy proceeding. These firms have established clean
holding companies and issued long-term debt to the market so that market participants – and not
taxpayers – bear the risk of loss; and they have identified mechanisms for measuring,
maintaining, and making available timely liquidity to fund operations during this period. They
have taken steps to modify their contracts with service providers and counterparties, and they
have worked to simplify their structures and funding lines to facilitate their strategy.