FDIC chair proclaims ‘bailouts not right’ as systemic resolution committee meets

“Bailouts are not right,” the board chairman of the federal insurer of bank deposits said Thursday in opening a meeting of the agency committee that advises on “systemic resolution” of failing financial institutions.

Federal Deposit Insurance Corp. (FDIC) Chairman Jelena McWilliams, in opening the session of the Systemic Resolution Advisory Committee, said the fundamental goals of resolution planning – for institutions large or small – should be “enable failure in the least destructive manner.”

She said resolution planning should work to minimize moral hazard and ensure that market discipline is real for all institutions.

“I think it goes without saying that everyone at this table would agree that bailouts are not right,” McWilliams said.

The committee, established under the auspices of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), is organized to provide advice and recommendations on “a broad range of issues regarding the resolution of systemically important financial companies,” according to the agency.

McWilliams also welcomed to the committee two new members: former FDIC Chair Sheila Bair and U.S. Bankruptcy Court Judge Shelly Chapman (of the southern district of New York), who McWilliams said presided over the bankruptcy of the investment bank Lehman Brothers.

On the agenda for the meeting: Making bankruptcy work; orderly liquidation update; and cross-border resolution implementation.