August 15th, 2012
When in July 2010 the Congress passed DFA, it is said by at least one major law firm that the legislation spends a great deal of its 2,300 pages addressing public anger with the bail-out in part produced by the financial sector’s ‘financial crisis’ rather than solving or resolving root and nominal causes of the financial condition of the US, its financial markets and those structures. Where Congress attempted to address the cost of resolving a potential bankruptcy of a very large bank or non-bank financial institution (consolidated assets greater than $50B), DFA established the Financial Stability Oversight Council (“FSOC”), membered by the ‘chairmen’ of the financial regulators, the Fed, and the Treasury Secretary to oversee the financial system and attempt to ‘close’ gaps in the regulatory framework, or stem perceived emerging threats to financial stability.
The FSOC has begun the process of selecting the largest financial institutions which it considers as important to the commercial-financial system, also known as systemically important financial institutions (“SIFIs” or “Covered Companies”). Moreover, within the regulatory bodies, experts will be engaging in and providing the “Orderly Liquidation Authority”, which reviews and engages in refereeing the potential unwind or what the FDIC labels as ‘resolution’ of a failed/in effect bankrupt SIFI.
Meanwhile the concern that in the event of failure of one of these interconnected financial institutions could destabilize other large financial institutions, the financial system and the US commercial framework, these monitored, “Covered Companies” must file their business/capital plans with the FDIC and the Fed. These plans mandated in Dodd Frank Act Section 165(d) are called Resolution Plans or “Living Wills”.
If over time, a SIFI’s Living Will reveals any or numbers of serious problems, the Orderly Liquidation Authority review may apply its power under DFA and begin a resolution process against that SIFI. As it were, the SIFI management’s produced Resolution Plan/Living Will serves to assist the regulators with the orderly resolution/break-up of that SIFI. Over time we will discuss more about SIFIs, FSOC , the Orderly Liquidation Authority, and Resolution Plans/Living Wills.
