Due to being a bit under the gun before taking off on holiday (I hope
you all enjoyed the posts from Matt Stoller, Lambert, and the other
guest writers), we didn’t address a May 10 speech by the acting FDIC chairman, Martin Gruenberg, on the FDIC’s
current thinking on how to resolve so called systemically important
financial institutions, or SIFIs. I’m turning to this now because I see
some people who ought to know better, such as the normally solid John
Hussmann, taking the FDIC”s claims at face value.
As an overview, Dodd Frank gave the FDIC new powers for resolving large, complex financial institutions, which are often referred to as “orderly liquidiation authority” or “Title II resolutions”. Nowhere does the Gruenberg speech mention that the FDIC does not have the authority to put a megabank down; it requires Fed and Treasury approval as well. So it seems unlikely, in the wake of Lehman, that any Administration is going to hazard euthanizing a foundering financial institution using an untested processes.
It’s worth noting that the FDIC has retreated from its position in a paper it published a bit more than a year ago, a description of how it would have used its expanded powers in the case of Lehman. Gruenber’s speech is de facto climbdown from that piece, which we shredded in a series of posts (here, here, here and here; it took that many rounds to beat back staunch administration defender Economics of Contempt.
The guts of the latest FDIC scheme is to resolve only the holding company and keep the healthy subsidiaries, including all foreign subsidiaries, going on a business-as-usual basis:
Read more: http://www.nakedcapitalism.com/2012/06/the-fdic-continues-to-promote-the-fantasy-that-it-can-resolve-megabanks.html
As an overview, Dodd Frank gave the FDIC new powers for resolving large, complex financial institutions, which are often referred to as “orderly liquidiation authority” or “Title II resolutions”. Nowhere does the Gruenberg speech mention that the FDIC does not have the authority to put a megabank down; it requires Fed and Treasury approval as well. So it seems unlikely, in the wake of Lehman, that any Administration is going to hazard euthanizing a foundering financial institution using an untested processes.
It’s worth noting that the FDIC has retreated from its position in a paper it published a bit more than a year ago, a description of how it would have used its expanded powers in the case of Lehman. Gruenber’s speech is de facto climbdown from that piece, which we shredded in a series of posts (here, here, here and here; it took that many rounds to beat back staunch administration defender Economics of Contempt.
The guts of the latest FDIC scheme is to resolve only the holding company and keep the healthy subsidiaries, including all foreign subsidiaries, going on a business-as-usual basis:
…the most promising resolution strategy from our point view will be to place the parent company into receivership and to pass its assets, principally investments in its subsidiaries, to a newly created bridge holding company. This will allow subsidiaries that are equity solvent and contribute to the franchise value of the firm to remain open and avoid the disruption that would likely accompany their closings. Because these subsidiaries will remain open and operating as going-concern counterparties, we expect that qualified financial contracts will continue to function normally as the termination, netting and liquidation will be minimal.
Read more: http://www.nakedcapitalism.com/2012/06/the-fdic-continues-to-promote-the-fantasy-that-it-can-resolve-megabanks.html
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