Banks 'Too Big to Fail,' Bank Shareholders Not
Subsidiary banks and thrifts with total assets of more than $50 billion will also be required to submit "living wills," and Gruenberg said "these two resolution plan rulemakings are designed to work in tandem and complement each other by covering the full range of business lines, legal entities and capital-structure combinations within a large financial firm." The FDIC acting chairman added that his agency and "the Federal Reserve have started the process of engaging with individual companies on the preparation of their resolution plans. The first plans, for companies with assets over $250 billion, are due in July."
Of course, with holding companies relying on overnight lending for so much of their funding, the FDIC would not have time to plan an orderly resolution and find a buyer like it does for an insured bank and thrift funded mainly with deposits, which further justifying the usefulness of the "living wills."
One of the FDIC's goals in establishing the new resolution rules for holding companies is "accountability, ensuring that the investors in the failed firm bear the firm's losses," and Gruenberg said that a "promising approach" to resolving a large, complex, publicly traded holding company would be to immediately place the holding company into receivership -- wiping out shareholders -- while "maintaining the subsidiary interconnections."
Another goal of the new resolution authority is financial stability, which Gruenberg said would be enhanced, because a failing large financial holding company's "subsidiaries will remain open and operating as going-concern counterparties,
Gruenberg also said the FDIC's resolution authority would "ensure that there is market accountability," because its resolution authority for a nonbank entity "does not provide insurance or credit protection for creditors and counterparties, and creditors will always be subject to potential losses."