Report outlines progress agency has made toward using expanded resolution powers for large, failing banks

Progress made developing the capability to use expanded authority to resolve failing large banks – including the “most comprehensive explanation to date of how the FDIC expects to utilize those authorities” – is outlined in a report publicly released Wednesday by the Federal Deposit Insurance Corp.

FDIC Board Chairman Martin Gruenberg, in remarks before the Peterson Institute for International Economics in Washington, D.C., outlined the report, titled “Overview of Resolution Under Title II of the Dodd Frank Act.”

“We believe it is of critical importance to the success of our efforts that the financial markets, policymakers, and the public have the clearest explanation possible of how the FDIC expects to manage the orderly resolution of a GSIB (Global Systemically Important Bank),” Gruenberg said. “That is the goal of the paper and my comments today.”

In a release, the FDIC said the paper:

  • Provides background of resolution-related authorities in the Dodd-Frank Act;
  • Highlights key measures that facilitate preparation and implementation of resolution under Title II authority;
  • Reviews strategic decision-making for the use of Title II authority; and
  • Explains how the FDIC expects to carry out a Title II resolution of a U.S. GSIB using a Single Point of Entry resolution strategy.

Gruenberg said that the paper reaffirms that the FDIC is prepared, should the need arise, “to apply the resolution framework that the FDIC and other regulatory authorities in the U.S. and globally have worked so hard to develop.”

As an example, he pointed to last year’s decision by Swiss banking authorities not to place Credit Suisse into a resolution process following its challenges in the wake of U.S. bank failures. He said that the Swiss had developed a resolution process consistent with international standards adopted by the Financial Stability Board (FSB) after the 2008 crisis – The Key Attributes for Effective Resolution Regimes for Financial Institutions.

Gruenberg said instead, the Swiss chose to facilitate an open institution acquisition of Credit Suisse with public support. The bank was ultimately purchased by UBS Corp. “This was done despite the view, as detailed in an FSB (Financial Stability Board) report released last year, that the cross-border resolution framework was sound and that a resolution was ready to be implemented by the Swiss authorities.”

Gruenberg acknowledged that a U.S. GSIB failure would be challenging under any circumstances. “Needless to say, we have yet to execute an orderly resolution of a U.S. GSIB,” he admitted. “Until we do so successfully, there will be questions as to whether it can be done.”

He said the purpose of the report is to explain “as clearly and in as much detail as possible how the FDIC expects to carry out that critical resolution responsibility.”

“We believe we have the authorities, resources, and capabilities to do the job if it becomes necessary,” he said. “We hope the paper generates interest in this issue. We stand ready to engage with all interested parties to address questions and build further understanding of the FDIC’s plans and preparedness for executing our Title II Dodd-Frank Act resolution responsibilities for GSIBs.”

FDIC Releases Comprehensive Report On Orderly Resolution of Global Systemically Important Banks