Statement of
James R. Wigand, Director,
Office of Complex Financial Institutions
On
Improving Cross Border Resolution
To
Better Protect Taxpayers
and the
Economy to the Subcommittee
On National Security and International
Trade and Finance, U.S. Senate
538 Dirksen Senate
Office Building
May 15, 2013
Chairman Warner, Ranking Member Kirk, and members of the Subcommittee, I
appreciate the opportunity to testify on behalf of the Federal Deposit Insurance
Corporation (FDIC) regarding our progress in addressing cross-border issues involved
in the resolution of a systemically important financial institution (SIFI) with international
subsidiaries and affiliates.
The financial crisis that began in late 2007 highlighted the complexity of the international
structures of many of these large, complex financial institutions and the need for
international cooperation if one of them became financially troubled. The Dodd-Frank
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requires the FDIC
to coordinate, to the maximum extent possible, with the appropriate foreign regulatory
authorities with respect to the resolution of SIFIs having cross-border operations.
Title I and Title II of the Dodd-Frank Act provide significant new authorities to the FDIC
and other regulators to address the failure of a SIFI. All large, systemic financial
companies covered under Title I must prepare resolution plans, or "living wills", to
demonstrate how the company would be resolved in a rapid and orderly manner under
the Bankruptcy Code in the event of the company’s material financial distress or failure.
Requiring SIFIs to explain their interactions with foreign authorities during a resolution is
a key element of the plans.
While bankruptcy remains the preferred option, Title II provides a back-up authority to
place a holding company, affiliates of an FDIC-insured depository institution, or a
nonbank financial company into a public receivership process, if no viable private sector
alternative is available to prevent the default of the financial company and a resolution
through the bankruptcy process would have serious adverse effects on financial stability
in the United States. Establishing and maintaining strong working relationship with our
cross-border counterparts will be critical, should the Title II authorities ever need to be
invoked. The FDIC and other regulators have been actively working with our
James R. Wigand, Director,
Office of Complex Financial Institutions
On
Improving Cross Border Resolution
To
Better Protect Taxpayers
and the
Economy to the Subcommittee
On National Security and International
Trade and Finance, U.S. Senate
538 Dirksen Senate
Office Building
May 15, 2013
Chairman Warner, Ranking Member Kirk, and members of the Subcommittee, I
appreciate the opportunity to testify on behalf of the Federal Deposit Insurance
Corporation (FDIC) regarding our progress in addressing cross-border issues involved
in the resolution of a systemically important financial institution (SIFI) with international
subsidiaries and affiliates.
The financial crisis that began in late 2007 highlighted the complexity of the international
structures of many of these large, complex financial institutions and the need for
international cooperation if one of them became financially troubled. The Dodd-Frank
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requires the FDIC
to coordinate, to the maximum extent possible, with the appropriate foreign regulatory
authorities with respect to the resolution of SIFIs having cross-border operations.
Title I and Title II of the Dodd-Frank Act provide significant new authorities to the FDIC
and other regulators to address the failure of a SIFI. All large, systemic financial
companies covered under Title I must prepare resolution plans, or "living wills", to
demonstrate how the company would be resolved in a rapid and orderly manner under
the Bankruptcy Code in the event of the company’s material financial distress or failure.
Requiring SIFIs to explain their interactions with foreign authorities during a resolution is
a key element of the plans.
While bankruptcy remains the preferred option, Title II provides a back-up authority to
place a holding company, affiliates of an FDIC-insured depository institution, or a
nonbank financial company into a public receivership process, if no viable private sector
alternative is available to prevent the default of the financial company and a resolution
through the bankruptcy process would have serious adverse effects on financial stability
in the United States. Establishing and maintaining strong working relationship with our
cross-border counterparts will be critical, should the Title II authorities ever need to be
invoked. The FDIC and other regulators have been actively working with our
international counterparts to coordinate resolution strategies for globally active
systemically important financial companies (G-SIFIs).
My testimony will provide greater detail about the authorities available to the FDIC to
address the failure of a SIFI and how they improve our ability to manage such failures
on an international basis. In addition, it will describe the significant progress we have
made with our foreign colleagues in one of the most challenging areas of the financial
reforms adopted since the recent crisis. Although much has been accomplished, more
work remains.
Resolving a Systemically Important Financial Firm
Title I – "Living Wills"
Bankruptcy is the preferred resolution framework in the event of a SIFI’s failure. To
make this prospect achievable, Title I of the Dodd-Frank Act requires that all bank
holding companies with total consolidated assets of $50 billion or more, and nonbank
financial companies that the Financial Stability Oversight Council (FSOC) determines
could pose a threat to the financial stability of the United States, prepare resolution
plans, or "living wills", to demonstrate how the company could be resolved in a rapid
and orderly manner under the Bankruptcy Code in the event of the company’s financial
distress or failure. This requirement enables both the firm and the firm’s regulators to
understand and address the parts of the business that could create systemic
consequences in a bankruptcy. The living will process is a necessary and significant
tool in ensuring that large financial institutions can be resolved through the bankruptcy
process.
The FDIC and the Federal Reserve Board issued a joint rule to implement Section
165(d) requirements for resolution plans – (the 165(d) Rule) – in November 2011. The
plans will detail how each covered company could be resolved under the Bankruptcy
Code, including information on their credit exposures, cross guarantees, organizational
structures and a strategic analysis describing the company’s plan for rapid and orderly
resolution.
In addition to the resolution plan requirements under the Dodd-Frank Act, the FDIC
issued a separate rule which requires all insured depository institutions (IDIs) with
greater than $50 billion in assets to submit resolution plans to the FDIC for their orderly
resolution through the FDIC’s traditional resolution powers under the Federal Deposit
Insurance Act (FDI Act). This rule, promulgated under the FDI Act, complements the
joint rule on resolution plans for SIFIs. The 165(d) Rule and the IDI resolution plan rule
are designed to work in tandem by covering the full range of business lines, legal
entities and capital-structure combinations within a large financial firm.
The FDIC and the Federal Reserve review the 165(d) plans and may jointly find that a
plan is not credible or would not facilitate an orderly resolution under the Bankruptcy
Code. If a plan is found to be deficient and adequate revisions are not made, the FDIC
systemically important financial companies (G-SIFIs).
My testimony will provide greater detail about the authorities available to the FDIC to
address the failure of a SIFI and how they improve our ability to manage such failures
on an international basis. In addition, it will describe the significant progress we have
made with our foreign colleagues in one of the most challenging areas of the financial
reforms adopted since the recent crisis. Although much has been accomplished, more
work remains.
Resolving a Systemically Important Financial Firm
Title I – "Living Wills"
Bankruptcy is the preferred resolution framework in the event of a SIFI’s failure. To
make this prospect achievable, Title I of the Dodd-Frank Act requires that all bank
holding companies with total consolidated assets of $50 billion or more, and nonbank
financial companies that the Financial Stability Oversight Council (FSOC) determines
could pose a threat to the financial stability of the United States, prepare resolution
plans, or "living wills", to demonstrate how the company could be resolved in a rapid
and orderly manner under the Bankruptcy Code in the event of the company’s financial
distress or failure. This requirement enables both the firm and the firm’s regulators to
understand and address the parts of the business that could create systemic
consequences in a bankruptcy. The living will process is a necessary and significant
tool in ensuring that large financial institutions can be resolved through the bankruptcy
process.
The FDIC and the Federal Reserve Board issued a joint rule to implement Section
165(d) requirements for resolution plans – (the 165(d) Rule) – in November 2011. The
plans will detail how each covered company could be resolved under the Bankruptcy
Code, including information on their credit exposures, cross guarantees, organizational
structures and a strategic analysis describing the company’s plan for rapid and orderly
resolution.
In addition to the resolution plan requirements under the Dodd-Frank Act, the FDIC
issued a separate rule which requires all insured depository institutions (IDIs) with
greater than $50 billion in assets to submit resolution plans to the FDIC for their orderly
resolution through the FDIC’s traditional resolution powers under the Federal Deposit
Insurance Act (FDI Act). This rule, promulgated under the FDI Act, complements the
joint rule on resolution plans for SIFIs. The 165(d) Rule and the IDI resolution plan rule
are designed to work in tandem by covering the full range of business lines, legal
entities and capital-structure combinations within a large financial firm.
The FDIC and the Federal Reserve review the 165(d) plans and may jointly find that a
plan is not credible or would not facilitate an orderly resolution under the Bankruptcy
Code. If a plan is found to be deficient and adequate revisions are not made, the FDIC