FDIC approves final rule requiring resolution plans

On 17 January 2012 the Federal Deposit Insurance Corporation (the “FDIC”) approved a final rule requiring insured depository institutions with USD 50 billion or more in total assets to periodically submit to the FDIC contingency plans for resolution in the event of the institution’s failure.  This rule follows a separate final ruling, adopted jointly by the FDIC and the Federal Reserve approved in September 2011 under Section 165(d) of the Dodd-Frank Act, which requires certain systemically important nonbank financial companies and bank holding companies to prepare resolution plans.

The main purpose of the ruling is to:

  • ensure that depositors receive access to their insured deposits within one business day of the institution’s failure (two business days if the failure occurs on a day other than a Friday);
  • maximise the net-present-value return from the sale or disposition of the failing institution’s assets; and
  • minimise the amount of any loss to be realized by the institution’s creditors.

Currently, 37 insured depository institutions are covered by the final rule, together holding approximately USD 4.14 trillion in insured deposits (or nearly 61 percent of all insured deposits), as of Sept. 30, 2011.

The rule becomes effective on 1 April 2012 and we shall be looking at it in more detail over the coming weeks.

All the best

Michael.

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