[Federal Register Volume 78, Number 243 (Wednesday, December 18, 2013)]
[Notices]
[Pages 76614-76624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-30057]


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FEDERAL DEPOSIT INSURANCE CORPORATION


Resolution of Systemically Important Financial Institutions: The 
Single Point of Entry Strategy

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice; request for comments.

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SUMMARY: Since enactment of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) in 2010, the FDIC has been 
developing its capabilities for implementing the Orderly Liquidation 
Authority established under Title II of that Act to allow for the 
orderly resolution of a systemically important financial institution. 
This notice describes in greater detail the Single Point of Entry 
strategy, highlights some of the issues identified in connection with 
the strategy, and requests public comment on various aspects of the 
strategy.

DATES: Comments must be received by the FDIC by February 18, 2014.

ADDRESSES: You may submit comments by any of the following methods:
     Agency Web Site: http://www.fdic.gov/regulations/laws/federal. Follow instructions for Submitting comments on the Agency Web 
site.
     Email: [email protected]. Include ``Single Point of Entry 
Strategy'' in the subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW., 
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m. (EST).
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    Public Inspection: All comments received will be posted without 
change to http://www.fdic.gov/regulations/laws/federal including any 
personal information provided. Comments may be inspected and 
photocopied in the FDIC Public Information Center, 3501 North Fairfax 
Drive, Room E-1002, Arlington, VA 22226, between 9 a.m. and 5 p.m. 
(EST) on business days. Paper copies of public comments may be ordered 
from the Public Information Center by telephone at (877) 275-3342 or 
(703) 562-2200.

FOR FURTHER INFORMATION CONTACT: Federal Deposit Insurance Corporation, 
550 17th Street NW., Washington, DC 20429: Office of Complex Financial 
Institutions: Herbert Held, Associate Director, Systemic Resolutions & 
Policy Implementation Group, Resolution Strategy & Implementation 
Branch (202) 898-7329; Rose Kushmeider, Acting Assistant Director, 
Systemic Resolutions & Policy Implementation Group, Policy Section 
(202) 898-3861; Legal Division: R. Penfield Starke, Assistant General 
Counsel, Receivership Section, Legal Division (703) 562-2422; Elizabeth 
Falloon, Supervisory Counsel, Receivership Policy Unit, Legal Division 
(703) 562-6148.

[[Page 76615]]


SUPPLEMENTARY INFORMATION: 

Background

    Since the passage of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) the FDIC has been developing its 
capability for resolving systemically important financial institutions 
(SIFIs). The Orderly Liquidation Authority (OLA) set out in Title II of 
the Dodd-Frank Act provides the FDIC with the ability to resolve such 
firms when bankruptcy would have serious adverse effects on financial 
stability in the United States. After consultation with public and 
private sector stakeholders, the FDIC has been developing what has 
become known as the Single Point of Entry (SPOE) strategy to implement 
its Authority. The purpose of this document is to provide greater 
detail on the SPOE strategy and to highlight issues that have been 
identified during the development of this strategy. We are seeking 
comment on this strategy and these issues to assist the FDIC in 
implementing its OLA responsibilities.
    The financial crisis that began in late 2007 demonstrated the lack 
of sufficient resolution planning on the part of market participants. 
In the absence of adequate and credible resolution plans on the part of 
global systemically important financial institutions (G-SIFIs), the 
financial crisis highlighted deficiencies in existing U.S. financial 
institution resolution regime as well the complexity of the 
international structures of G-SIFIs. At that time, the FDIC's 
receivership authorities were limited to federally insured banks and 
thrift institutions. The lack of authority to place a holding company 
or affiliates of an insured depository institution (IDI) or any other 
non-bank financial company into an FDIC receivership to avoid systemic 
consequences limited policymakers' options, leaving them with the poor 
choice of bail-outs or disorderly bankruptcy. In the aftermath of the 
crisis, Congress enacted the Dodd-Frank Act in July 2010.
    Title I and Title II of the Dodd-Frank Act provide significant new 
authorities to the FDIC and other regulators to address the failure of 
a SIFI. Title I requires all companies covered under it to prepare 
resolution plans, or ``living wills,'' to demonstrate how they would be 
resolved in a rapid and orderly manner under the Bankruptcy Code (or 
other applicable insolvency regime) in the event of material financial 
distress or failure. Although the statute makes clear that bankruptcy 
is the preferred resolution framework in the event of the failure of a 
SIFI, Congress recognized that a SIFI might not be resolvable under 
bankruptcy without posing a systemic risk to the U.S. economy.
    Title II, therefore, provides a back-up authority to place a SIFI 
into an FDIC receivership process if no viable private-sector 
alternative is available to prevent the default of the financial 
company and if a resolution through the bankruptcy process would have 
serious adverse effects on U.S. financial stability. Title II gives the 
FDIC new OLA that provides the tools necessary to ensure the rapid and 
orderly resolution of a covered financial company.
    While the Dodd-Frank Act does not specify how a resolution should 
be structured, Title II clearly establishes certain policy goals. The 
FDIC must resolve the covered financial company in a manner that holds 
owners and management responsible for its failure accountable--in order 
to minimize moral hazard and promote market discipline--while 
maintaining the stability of the U.S. financial system. Creditors and 
shareholders must bear the losses of the financial company in 
accordance with statutory priorities and without imposing a cost on 
U.S. taxpayers.
    In developing a resolution strategy the FDIC considered how it 
could overcome a number of impediments that must be addressed in any 
resolution. Key impediments are:
     Multiple Competing Insolvencies: Multiple jurisdictions, 
with the possibility of different insolvency frameworks, raise the risk 
of discontinuity of critical operations and uncertain outcomes;
     Global Cooperation: The risk that lack of cooperation 
could lead to ring-fencing of assets or other outcomes that could 
exacerbate financial instability in the United States and/or loss of 
franchise value, as well as uncertainty in the markets;
     Operations and Interconnectedness: The risk that services 
provided by an affiliate or third party might be interrupted, or access 
to payment and clearing capabilities might be lost;
     Counterparty Actions: The risk that counterparty actions 
might create operational challenges for the company, leading to 
systemic market disruption or financial instability in the United 
States; and
     Funding and Liquidity: The risk of insufficient liquidity 
to maintain critical operations, which may arise from increased margin 
requirements, termination or inability to roll over short-term 
borrowings, loss of access to alternative sources of credit.

Additionally, the FDIC and the Federal Reserve issued Guidance in 2013 
asking SIFIs filing their second Resolution Plans to discuss strategies 
for overcoming these obstacles in those Plans. Addressing these 
impediments would facilitate resolution under the bankruptcy process 
and, if necessary, under a Title II process.

The Single Point of Entry Strategy

    To implement its authority under Title II, the FDIC is developing 
the SPOE strategy. In choosing to focus on the SPOE strategy, the FDIC 
determined that the strategy would hold shareholders, debt holders and 
culpable management accountable for the failure of the firm. 
Importantly, it would also provide stability to financial markets by 
allowing vital linkages among the critical operating subsidiaries of 
the firm to remain intact and preserving the continuity of services 
between the firm and financial markets that are necessary for the 
uninterrupted operation of the payments and clearing systems, among 
other functions.

Overview

    U.S. SIFIs generally are organized under a holding company 
structure with a top-tier parent and operating subsidiaries that 
comprise hundreds, or even thousands, of interconnected entities that 
span legal and regulatory jurisdictions across international borders 
and share funding and support services. Functions and core business 
lines often are not aligned with individual legal entity structures. 
Critical operations can cross legal entities and jurisdictions and 
funding is often dispersed among affiliates as need arises. These 
integrated structures make it very difficult to conduct an orderly 
resolution of one part of the company without triggering a costly 
collapse of the entire company and potentially transmitting adverse 
effects throughout the financial system. Additionally, it is the top-
tier company that raises the equity capital of the institution and 
subsequently down-streams equity and some debt funding to its 
subsidiaries.
    In resolving a failed or failing SIFI the FDIC seeks to promote 
market discipline by imposing losses on the shareholders and creditors 
of the top-tier holding company and removing culpable senior management 
without imposing cost on taxpayers. This would create a more stable 
financial system over the longer term. Additionally, the FDIC seeks to 
preserve financial stability by maintaining the critical services, 
operations and funding mechanisms conducted throughout the company's 
operating subsidiaries. The Dodd-Frank Act provides certain statutory 
authorities to the FDIC to effect an

[[Page 76616]]

orderly resolution. Included among these are the power to establish a 
bridge financial company and to establish the terms and conditions 
governing its management and operations, including appointment of the 
board of directors. Additionally, the FDIC may transfer assets and 
liabilities to the bridge financial company without obtaining consents 
or approvals.
    To implement the SPOE strategy the FDIC would be appointed receiver 
only of the top-tier U.S. holding company, and subsidiaries would 
remain open and continue operations. The FDIC would organize a bridge 
financial company, into which it would transfer assets from the 
receivership estate, primarily the covered financial company's 
investments in and loans to subsidiaries. Losses would be apportioned 
according to the order of statutory priority among the claims of the 
former equity holders and unsecured creditors, whose equity, 
subordinated debt and senior unsecured debt would remain in the 
receivership. Through a securities-for-claims exchange the claims of 
creditors in the receivership would be satisfied by issuance of 
securities representing debt and equity of the new holding company or 
holding companies (NewCo or NewCos). In this manner, debt in the failed 
company would be converted into equity that would serve to ensure that 
the new operations would be well-capitalized.
    The newly formed bridge financial company would continue to provide 
the holding company functions of the covered financial company. The 
company's subsidiaries would remain open and operating, allowing them 
to continue critical operations for the financial system and avoid the 
disruption that would otherwise accompany their closings, thus 
minimizing disruptions to the financial system and the risk of 
spillover effects to counterparties. Because these subsidiaries would 
remain open and operating as going concerns, and any obligations 
supporting subsidiaries' contracts would be transferred to the bridge 
financial company, counterparties to most of the financial company's 
derivative contracts would have no legal right to terminate and net out 
their contracts. Such action would prevent a disorderly termination of 
these contracts and a resulting fire sale of assets.
    Under the Dodd-Frank Act, officers and directors responsible for 
the failure cannot be retained and would be replaced. The FDIC would 
appoint a board of directors and would nominate a new chief executive 
officer and other key managers from the private sector to replace 
officers who have been removed. This new management team would run the 
bridge financial company under the FDIC's oversight during the first 
step of the process.
    During the resolution process, measures would be taken to address 
the problems that led to the company's failure. These could include 
changes in the company's businesses, shrinking those businesses, 
breaking them into smaller entities, and/or liquidating certain 
subsidiaries or business lines or closing certain operations. The 
restructuring of the firm might result in one or more smaller companies 
that would be able to be resolved under bankruptcy without causing 
significant adverse effect to the U.S. economy.
    The FDIC intends to maximize the use of private funding in a 
systemic resolution and expects the well-capitalized bridge financial 
company and its subsidiaries to obtain funding from customary sources 
of liquidity in the private markets. The FDIC, however, realizes that 
market conditions could be such that private sources of funding might 
not be immediately available. If private-sector funding cannot be 
immediately obtained, the Dodd-Frank Act provides for an Orderly 
Liquidation Fund (OLF) to serve as a back-up source of liquidity 
support that would only be available on a fully secured basis. If 
needed at all, the FDIC could facilitate private-sector funding to the 
bridge financial company and its subsidiaries by providing guarantees 
backed by its authority to obtain funding through the OLF. 
Alternatively, funding could be secured directly from the OLF by 
issuing obligations backed by the assets of the bridge financial 
company. These obligations would only be issued in limited amounts for 
a brief transitional period in the initial phase of the resolution 
process and would be repaid promptly once access to private funding 
resumed.
    If any OLF obligations are issued to obtain funding, they would be 
repaid during the orderly liquidation process. Ultimately OLF 
borrowings are to be repaid either from recoveries on the assets of the 
failed firm or, in the unlikely event of a loss on the collateralized 
borrowings, from assessments against the eligible financial 
companies.\1\ The law expressly prohibits taxpayer losses from the use 
of this Title II authority.
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    \1\ The Dodd-Frank Act defines ``eligible financial companies'' 
as any bank holding company with total consolidated assets of $50 
billion or more and any nonbank financial company supervised by the 
Board of Governors of the Federal Reserve as a result of its 
designation by the Financial Stability Oversight Council.
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The Appointment of the FDIC as the Title II Receiver

    If a SIFI encounters severe financial distress, bankruptcy is the 
first option. Under Title I the objective is to have the SIFI produce a 
credible plan that would demonstrate how resolution under the 
Bankruptcy Code would not pose a systemic risk to the U.S. economy. A 
Title II resolution would only occur if a resolution under the 
Bankruptcy Code could not be implemented without serious adverse 
effects on financial stability in the United States.
    Before a SIFI can be resolved under Title II, two-thirds of the 
Federal Reserve Board and the Board of Directors of the FDIC must make 
recommendations to the Secretary of the Treasury (Secretary) that 
include a determination that the company is in default or in danger of 
default, what effect a default would have on U.S. financial stability, 
and what serious adverse effect proceeding under the Bankruptcy Code 
would have.\2\ With the recommendations and plan submitted by the 
Federal Reserve and the FDIC, the Secretary in consultation with the 
President would determine, among other things, whether the SIFI was in 
default or danger of default and that the failure and its resolution 
under bankruptcy would have a serious adverse effect on U.S. financial 
stability. If all conditions are met, a twenty-four hour judicial 
review process is initiated, if applicable.\3\ At the end of this 
period, absent adverse judicial action, the FDIC is appointed receiver, 
the bridge financial company would be chartered and a new board of 
directors and chief executive officer appointed.
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    \2\ The SEC and the Federal Insurance Office are substituted for 
the FDIC if the company or its largest subsidiary is a broker/dealer 
or insurance company, respectively; the FDIC is also consulted in 
the determination process in these cases.
    \3\ Subsequent to a determination, the Secretary would notify 
the board of directors of the covered financial company. If the 
board of directors does not consent to the appointment of the FDIC 
as receiver, the Secretary shall petition the court for an order 
authorizing the Secretary to appoint the FDIC as receiver.
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Organization and Operation of the Bridge Financial Company

    Upon its appointment as receiver of the top-tier U.S. holding 
company of the covered financial company, the FDIC would adopt articles 
of association and bylaws and issue a charter for the bridge financial 
company. From a pre-screened pool of eligible candidates, the FDIC 
would establish the initial board of directors, including appointment 
of a

[[Page 76617]]

chairman of the board. At its initial meeting the board of directors 
would appoint a chief executive officer of the bridge financial company 
based upon the nomination of candidates that have been vetted and 
screened by the FDIC. Other experienced senior management, including a 
chief financial officer and chief risk officer, also would be promptly 
named.
    In connection with the formation of the bridge financial company, 
the FDIC would require the company to enter into an initial operating 
agreement that would require certain actions, including, without 
limitation: (1) Review of risk management policies and practices of the 
covered financial company to determine the cause(s) of failure and to 
develop and implement a plan to mitigate risks identified in that 
review; (2) preparation and delivery to the FDIC of a business plan for 
the bridge financial company, including asset disposition strategies 
that would maximize recoveries and avoid fire sales of assets; (3) 
completion of a review of pre-failure management practices of all key 
businesses and operations; (4) preparation of a capital, liquidity and 
funding plan consistent with the terms of any mandatory repayment plan 
and the capital and liquidity requirements established by the 
appropriate federal banking agency or other primary financial 
regulatory agency; (5) retention of accounting and valuation 
consultants and professionals acceptable to the FDIC, and completion of 
audited financial statements and valuation work necessary to execute 
the securities-for-claims exchange; and (6) preparation of a plan for 
the restructuring of the bridge financial company, including 
divestiture of certain assets, businesses or subsidiaries that would 
lead to the emerging company or companies being resolvable under the 
Bankruptcy Code without the risk of serious adverse effects on 
financial stability in the United States. The initial operating 
agreement would establish time frames for the completion and 
implementation of the plans described above.
    Day-to-day management of the company would continue to be 
supervised by the officers and directors of the bridge financial 
company. The FDIC expects that the bridge financial company would 
retain most of the employees in order to maintain the appropriate 
skills and expertise to operate the businesses and most employees of 
subsidiaries and affiliates would be unaffected. As required by the 
statute, the FDIC would identify and remove management of the covered 
financial company who were responsible for its failed condition. 
Additionally, the statute requires that compensation be recouped from 
any current or former senior executive or director substantially 
responsible for the failure of the company.
    The FDIC would retain control over certain high-level key matters 
of the bridge financial company's governance, including approval rights 
for any issuance of stock; amendments or modifications of the articles 
or bylaws; capital transactions in excess of established thresholds; 
asset transfers or sales in excess of established thresholds; merger, 
consolidation or reorganization of the bridge financial company; any 
changes in directors of the bridge financial company (with the FDIC 
retaining the right to remove, at its discretion, any or all 
directors); any distribution of dividends; any equity-based 
compensation plans; the designation of the valuation experts; and the 
termination and replacement of the bridge financial company's 
independent accounting firm. Additional controls may be imposed by the 
FDIC as appropriate.

Funding the Bridge Financial Company

    It is anticipated that funding the bridge financial company would 
initially be the top priority for its new management. In raising new 
funds the bridge would have some substantial advantages over its 
predecessor. The bridge financial company would have a strong balance 
sheet with assets significantly greater than liabilities since 
unsecured debt obligations would be left as claims in the receivership 
while all assets will be transferred. As a result, the FDIC expects the 
bridge financial company and its subsidiaries to be in a position to 
borrow from customary sources in the private markets in order to meet 
liquidity needs. Such funding would be preferred even if the associated 
fees and interest expenses would be greater than the costs associated 
with advances obtained through the OLF.
    If the customary sources of funding are not immediately available, 
the FDIC might provide guarantees or temporary secured advances from 
the OLF to the bridge financial company soon after its formation. Once 
the customary sources of funding are reestablished and private market 
funding can be accessed, OLF monies would be repaid. The FDIC expects 
that OLF monies would only be used for a brief transitional period, in 
limited amounts with the specific objective of discontinuing their use 
as soon as possible.
    All advances would be fully secured through the pledge of the 
assets of the bridge financial company and its subsidiaries. If the 
assets of the bridge financial company, its subsidiaries, and the 
receivership are insufficient to repay fully the OLF through the 
proceeds generated by a sale or refinancing of bridge financial company 
assets, the receiver would impose risk-based assessments on eligible 
financial companies to ensure that any obligations issued by the FDIC 
to the Secretary are repaid without loss to the taxpayer.
    The Dodd-Frank Act capped the amount of OLF funds that can be used 
in a resolution by the maximum obligation limitation. Upon placement 
into a Title II resolution this amount would equal 10 percent of the 
total consolidated assets of the covered financial company based on the 
most recent financial statements available. If any OLF funds are used 
beyond the initial thirty (30) day period or in excess of the initial 
maximum obligation limit, the FDIC must prepare a repayment plan.\4\ 
This mandatory repayment plan would provide a schedule for the 
repayment of all such obligations, with interest, at the rate set by 
the Secretary. Such rate would be at a premium over the average 
interest rates on an index of corporate obligations of comparable 
maturities. After a preliminary valuation of the assets and preparation 
of the mandatory repayment plan, the maximum obligation limit would 
change to 90 percent of the fair value of the total consolidated assets 
available for repayment.
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    \4\ The FDIC would prepare a mandatory repayment plan after its 
appointment as receiver of the covered financial company, but in no 
event later than thirty (30) days after such date. The FDIC would 
work with the Secretary to finalize the plan and would submit a copy 
of the plan to Congress. The mandatory repayment plan would describe 
the anticipated amount of the obligations issued by the FDIC to the 
Secretary in order to borrow monies from the OLF subject to the 
maximum obligation limitation as well as the anticipated cost of any 
guarantees issued by the FDIC.
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Claims Determination and the Capitalization Process

    The FDIC is required by the Dodd-Frank Act to conduct an 
administrative claims process to determine claims against the covered 
financial company left in receivership, including the amount and 
priority of allowed claims. Once a valuation of the bridge financial 
company's assets and the administrative claims process are completed, 
creditors' claims would be paid through a securities-for-claims 
exchange.
Claims Determination
    The Dodd-Frank Act established a priority of claims that would 
apply to all claims left in the receivership.

[[Page 76618]]

Following the statutory priority of claims, the administrative expenses 
of the receiver shall be paid first, any amounts owed to the United 
States next, then certain limited employee salary and benefit claims, 
other general or senior unsecured creditor claims, subordinated debt 
holder claims, wage and benefit claims of senior officers and 
directors, and finally, shareholder claims. Allowable claims against 
the receivership would be made pro rata to claimants in each class to 
the extent that assets in the receivership estate are available 
following payments to all prior senior classes of claims. Liabilities 
transferred to the bridge financial company as an on-going institution 
would be paid in the ordinary course of business.
    Certain claims of the holding company would be transferred to the 
bridge financial company to facilitate its operation and to mitigate 
systemic risk. For instance, obligations of vendors providing essential 
services would be assumed by the bridge financial company in order to 
keep day-to-day operations running smoothly. Such an action would be 
analogous to the ``first-day'' orders in bankruptcy where the 
bankruptcy court approves payment of pre-petition amounts due to 
certain vendors whose goods or services are critical to the debtor's 
operations during the bankruptcy process. The transfer would also 
likely include secured claims of the holding company because the 
transfer of fully secured liabilities with the related collateral would 
not diminish the net value of the assets in the receivership and would 
avoid any systemic risk effects from the immediate liquidation of the 
collateral. The FDIC expects shareholders' equity, subordinated debt 
and a substantial portion of the unsecured liabilities of the holding 
company--with the exception of essential vendors' claims--to remain as 
claims against the receivership.
    In general the FDIC is to treat creditors of the receivership 
within the same class and priority of claim in a similar manner. The 
Dodd-Frank Act, however, allows the FDIC a limited ability to treat 
similarly situated creditors differently. Any transfer of liabilities 
from the receivership to the bridge financial company that has a 
disparate impact upon similarly situated creditors would only be made 
if such a transfer would maximize the return to those creditors left in 
the receivership and if such action is necessary to initiate and 
continue operations essential to the bridge financial company.
    Although the consent of creditors of the receivership is not 
required in connection with any disparate treatment, all creditors must 
receive at least the amount that they would have received if the FDIC 
had not been appointed as receiver and the company had been liquidated 
under Chapter 7 of the Bankruptcy Code or other applicable insolvency 
regime. Further, any transfer of liabilities that involves disparate 
treatment would require the determination by the Board of Directors of 
the FDIC that it is necessary and lawful, and the identity of creditors 
that have received additional payments and the amount of any additional 
payments made to them must be reported to Congress. The FDIC expects 
that disparate treatment of creditors would occur only in very limited 
circumstances and has, by regulation, expressly limited its discretion 
to treat similarly situated creditors differently.\5\
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    \5\ The FDIC has stated that it would not exercise its 
discretion to treat similarly situated creditors differently in a 
manner that would result in preferential treatment to holders of 
long-term senior debt (defined as unsecured debt with a term of 
longer than one year), subordinated debt, or equity holders. See 12 
CFR 380.27.
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    Similar to the bankruptcy process, for creditors left in the 
receivership, the FDIC must establish the claims bar date for the 
filing of claims; this date must not be earlier than ninety (90) days 
after the publication of the notice of appointment of the FDIC as 
receiver. With the exception of certain secured creditors whose process 
might be expedited, the receiver would have up to one hundred eighty 
(180) days to determine the status of a claim unless that determination 
period is extended by mutual agreement.\6\ A claimant can seek a de 
novo judicial determination of its claim in the event of an adverse 
determination by the FDIC. Such an action must be brought within sixty 
(60) days of the notice of disallowance.\7\ To the extent possible and 
consistent with the claims process mandated by the Dodd-Frank Act, the 
FDIC intends to adapt certain claims forms and practices applicable to 
a Chapter 11 proceeding under the Bankruptcy Code. For example, the 
proof of claim form would be derived from the standard proof of claim 
form used in a bankruptcy proceeding. The FDIC also expects to provide 
information regarding any covered financial company receivership on an 
FDIC Web site, and would also establish a call center to handle public 
inquiries.
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    \6\ The FDIC would endeavor to determine the majority of claims 
(as measured by total dollar amount) within a shorter time frame.
    \7\ An expedited process is available to certain secured 
creditors in which the FDIC's determination must be made within 
ninety (90) days and any action for a judicial determination must be 
filed within thirty (30) days.
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Capitalization
    In reorganization under the bankruptcy laws, creditors' claims are 
sometimes satisfied through the issuance of securities in the new 
company. Likewise, the SPOE strategy provides for the payment of 
creditors' claims in the receivership through the issuance of 
securities in a securities-for-claims exchange. This exchange involves 
the issuance and distribution of new debt, equity and, possibly, 
contingent securities--such as warrants or options--in NewCo (or 
NewCos) that will succeed the bridge financial company to the receiver. 
The receiver would then exchange the new debt and equity for the 
creditors' claims. This would provide value to creditors without 
resorting to a liquidation of assets. The warrants or options would 
protect creditors in lower priority classes, who have not received 
value, against the possibility of an undervaluation, thereby ensuring 
that the value of the failed company is distributed in accordance with 
the order of priority.
    Prior to the exchange of securities for claims, the FDIC would 
approve the value of the bridge financial company. The valuation would 
be performed by independent experts, including investment bankers and 
accountants, selected by the board of directors of the bridge financial 
company. Selection of the bridge financial company's independent 
experts would require the approval of the FDIC, and the FDIC would 
engage its own experts to review the work of these firms and to provide 
a fairness opinion.
    The valuation work would include, among other things, review and 
testing of models that had been used by the covered financial company 
before failure as well as establishing values for all assets and 
business lines. The valuation would provide a basis for establishing 
the capital and leverage ratios of the bridge financial company, as 
well as the amount of losses incurred by both the bridge financial 
company and the covered financial company in receivership. The 
valuation would also help to satisfy applicable SEC requirements for 
the registration or qualified exemption from registration of any 
securities issued in an exchange, in addition to other applicable 
reporting and disclosure obligations.
    Due to the nature of the types of assets at the bridge financial 
company and the likelihood of market uncertainty regarding asset 
values, the valuation

[[Page 76619]]

process necessarily would yield a range of values for the bridge 
financial company. The FDIC would work with its consultants and 
advisors to establish an appropriate valuation within that range. 
Contingent value rights, such as warrants or options allowing the 
purchase of equity in NewCo (or NewCos) or other instruments, might be 
issued to enable claimants in impaired classes to recover value in the 
event that the approved valuation point underestimates the market value 
of the company. Such contingent securities would have limited durations 
and an option price that would provide a fair recovery in the event 
that the actual value of the company is other than the approved value. 
When the claims of creditors have been satisfied through this exchange, 
and upon compliance with all regulatory requirements, including the 
ability to meet or exceed regulatory capital requirements, the charter 
of the bridge financial company would terminate and the company would 
be converted to one or more state-chartered financial companies.\8\
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    \8\ The FDIC retains the discretion in appropriate circumstances 
to make cash payments to creditors with de minimis claims or for 
whom payment in the form of securities would present an unreasonable 
hardship.
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    The bridge financial company would issue audited financial 
statements as promptly as possible. The audited financial statements of 
the bridge financial company would be prepared by a qualified 
independent public accounting firm in accordance with generally 
accepted accounting principles and applicable SEC requirements. The 
FDIC has consulted with the SEC regarding the accounting framework that 
should be applied in a Title II securities-for-claims exchange, and has 
determined that the ``fresh start model'' is the most appropriate 
accounting treatment to establish the new basis for financial reporting 
for the emerging company. The fresh start model requires the 
determination of a fair value measurement of the assets of the company, 
which represents the price at which each asset would be transferred 
between market participants at an established date. This is the 
accounting framework generally applied to companies emerging from 
bankruptcy under Chapter 11 of the Bankruptcy Code to determine their 
reorganization value and establish a new basis for financial reporting. 
The valuation and auditing processes would establish the value of 
financial instruments, including subordinated or convertible debt and 
common equity in NewCo (or NewCos) issued to creditors in satisfaction 
of their claims.
    Figure 1 demonstrates the claims and capitalization process. In 
this hypothetical example, ABC Universal Holdings Inc. is placed into a 
Title II receivership following a loss on assets and subsequent 
liquidity run. Upon transfer of ABC's remaining assets and certain 
liabilities into a bridge financial company a valuation is performed 
and the estimated losses in ABC are calculated to be $140 billion-$155 
billion. The company's assets are then written down and losses 
apportioned to the claims of the shareholders and debt holders of ABC 
Universal Holdings Inc., which have been left in the receivership, 
according to the order of priority. In this example, shareholders and 
subordinated debt holders lose their entire respective claims of $128 
billion and $15 billion. Additionally, unsecured debt holders lose $12 
billion of their $120 billion in claims against the receivership.
    In order to exit the bridge financial company, NewCo must meet or 
exceed all regulatory capital requirements. To do this, the unsecured 
creditors are given $100 billion in equity, $3 billion in subordinated 
debt, and $5 billion in senior unsecured debt of NewCo. Additionally, 
call options, warrants, or other contingent claims are issued to 
compensate the unsecured debt holders for their remaining claims ($12 
billion). The former subordinated debt holders and equity holders of 
ABC Universal Holdings Inc. are also issued call options, warrants or 
other contingent value rights for their claims, which would not have 
any value until the unsecured claimants had been paid in full.
BILLING CODE 6741-01-P

[[Page 76620]]

[GRAPHIC] [TIFF OMITTED] TN18DE13.001

    Ownership of securities in NewCo (or NewCos) would be subject to 
any applicable concentration limits and other restrictions or 
requirements under U.S. banking and securities laws and other 
applicable restrictions, including for instance, cross-border change-
of-control issues. In addition, the FDIC may determine to pay claims in 
cash or deposit securities into a trust for prompt liquidation for 
those portions of certain creditors' claims that would result in the 
creditors owning more than 4.9 percent of the issued and outstanding 
common voting securities of NewCo (or NewCos).

Restructuring and the Emergence of NewCo (or NewCos)

    The FDIC's goal is to limit the time during which the failed 
covered financial company is under public control and expects the 
bridge financial company to be ready to execute its securities-for-
claims exchange within six to nine months. Execution of this exchange 
would result in termination of the bridge financial company's charter 
and establishment of NewCo (or NewCos).
    The termination of the bridge financial company would only occur 
once it is clear that a plan for restructuring, which can be enforced, 
has been approved by the FDIC, and that NewCo (or NewCos) would meet or 
exceed regulatory capital requirements. This would ensure that NewCo 
(or NewCos) would not pose systemic risk to the financial system and 
would lead to NewCo (or NewCos) being resolvable under the Bankruptcy 
Code. This might be accomplished either through reorganizing, 
restructuring or divesting subsidiaries of the company.
    This process would result in the operations and legal entity 
structure of the company being more closely aligned and the company 
might become smaller and less complex. In addition, the restructuring 
might result in the company being divided into several companies or 
parts of entities being sold to third parties. This process would be 
facilitated to the extent the former company's Title I process was 
effective in mitigating obstacles and addressing impediments to 
resolvability under the Bankruptcy Code.
    Before terminating the bridge financial company and turning its 
operations over to the private sector, the FDIC would require the board 
of directors and management of the bridge financial company--as part of 
the initial operating agreement--to formulate a plan and a timeframe 
for restructuring that would make the company resolvable under the 
Bankruptcy Code. The board of directors and management of the company 
must stipulate that all of its successors would complete all 
requirements providing for divestiture, restructuring and 
reorganization of the company. The bridge financial company would also 
be required to prepare a new living will that meets all requirements, 
and that might include detailed project plans, with specified 
timeframes, to make NewCo (or NewCos) resolvable in

[[Page 76621]]

bankruptcy.\9\ Finally, the board(s) of directors and management(s) of 
NewCo (or NewCos) would be expected to enter into an agreement (or 
agreements) with the company's (or companies') primary financial 
regulatory agency to continue the plan for restructuring developed as 
part of the initial operating agreement as a condition for approval of 
its (their) holding company application(s).
---------------------------------------------------------------------------

    \9\ While NewCo (or NewCos) would no longer be systemic, it is 
still likely to fall under the requirement to file a Title I plan 
due to having assets greater than $50 billion.
---------------------------------------------------------------------------

    Figure 2 demonstrates the FDIC's anticipated time line for the 
resolution of a SIFI under Title II authorities. As the figure shows, 
pre-failure resolution planning will be critical, including the 
information obtained as a result of the review of the Title I plans. 
The window between imminent failure and placement into a Title II 
receivership would be very short and the FDIC anticipates having the 
bridge financial company ready to be terminated 180-270 days following 
its chartering, subject to the conditions described above.
[GRAPHIC] [TIFF OMITTED] TN18DE13.002

BILLING CODE 6741-01-C

Reporting

    The FDIC recognizes the importance of providing transparent 
reporting to the public, financial markets, Congress, and the 
international community. The FDIC intends to execute its resolution 
strategy in a manner consistent with these objectives.
    The FDIC would provide the best available information regarding the 
financial condition of the bridge financial company to creditors of the 
covered financial company. The bridge financial company would comply 
with all disclosure and reporting requirements under applicable 
securities laws, provided that if all standards cannot be met because 
audited financial statements are not available with respect to the 
bridge financial company, the FDIC would work with the SEC to set 
appropriate disclosure standards. The receiver of the covered financial 
company would also make appropriate disclosures. The FDIC and bridge 
financial company would provide reports and disclosures containing 
meaningful and useful information to stakeholders in compliance with 
applicable standards.
    The FDIC anticipates that the bridge financial company would retain 
the covered financial company's existing financial reporting systems, 
policies and procedures, unless the FDIC or other regulators of the 
covered financial company have identified material weaknesses in such 
systems, policies or procedures. The bridge financial company and its 
operating companies would be required to satisfy applicable regulatory 
reporting requirements, including the preparation of

[[Page 76622]]

consolidated reports of condition and income (call reports). The new 
board of directors would retain direct oversight over the financial 
reporting functions of the bridge financial company and would be 
responsible for engaging an independent accounting firm and overseeing 
the completion of audited consolidated financial statements of the 
bridge financial company as promptly as possible.
    The FDIC would fully comply with the Dodd-Frank Act requirement 
that the FDIC, not later than sixty (60) days after its appointment as 
receiver for a covered financial company, file a report with the Senate 
and House banking committees. The FDIC's report must provide 
information on the financial condition of the covered financial 
company; describe the FDIC's plan for resolving the covered financial 
company and its actions taken to date; give reasons for using proceeds 
from the OLF for the receivership; project the costs of the orderly 
liquidation of the covered financial company; explain which claimants 
in the receivership have been treated differently from other similarly 
situated claimants and the amount of any additional payments; and 
explain any waivers of conflict of interest rules with regard to the 
FDIC's hiring of private sector persons who are providing services to 
the receivership of the covered financial company.
    The FDIC anticipates making a public version of its Congressional 
report available on its Web site and providing necessary updates on at 
least a quarterly basis. In addition, if requested by Congress, the 
FDIC and the primary financial regulatory agency of the covered 
financial company will testify before Congress no later than thirty 
(30) days after the FDIC files its first report. The FDIC also 
anticipates that the bridge financial company or NewCo (or NewCos) 
would provide additional information to the public in connection with 
any issuance of securities, as previously discussed.

Request for Comment

    To implement its authority under Title II, the FDIC is developing 
the SPOE strategy. In developing and refining this strategy to this 
point, the FDIC has engaged with numerous stakeholders and other 
interested parties to describe its plans for the use of the SPOE 
strategy and to seek reaction. During the course of this process, a 
number of issues have been identified that speak to the question of how 
a Title II resolution strategy can be most effective in achieving the 
dual objectives of promoting market discipline and maintaining 
financial stability. The FDIC seeks public comments on these and other 
issues.

Disparate Treatment

    The issue of disparate treatment has been raised regarding the lack 
of a creditors' committee under a Title II resolution and the fact that 
creditor approval is not necessary for the FDIC to apply disparate 
treatment. The FDIC, however, has by regulation, expressly limited its 
discretion to treat similarly situated creditors differently and the 
application of such treatment would require the determination by the 
Board of Directors of the FDIC that it is necessary and lawful.\10\ 
Further, under the Dodd-Frank Act, each creditor affected by such 
treatment must receive at least the amount that he/she would have 
received if the FDIC had not been appointed as receiver and the company 
had been liquidated under Chapter 7 of the Bankruptcy Code or other 
applicable insolvency regime. The identity of creditors that have 
received additional payments and the amount of any additional payments 
made to them must be reported to Congress.
---------------------------------------------------------------------------

    \10\ The FDIC has stated that it would not exercise its 
discretion to treat similarly situated creditors differently in a 
manner that would result in preferential treatment to holders of 
long-term senior debt (defined as unsecured debt with a term of 
longer than one year), subordinated debt, or equity holders.
---------------------------------------------------------------------------

    The FDIC expects that disparate treatment of creditors would occur 
only in very limited circumstances. It is permissible under the statute 
only if such an action is necessary to continue operations essential to 
the receivership or the bridge financial company, or to maximize 
recoveries. For example, such treatment could be used to provide 
payment for amounts due to certain vendors whose goods or services are 
critical to the operations of the bridge financial company and in this 
sense would be analogous to the ``first-day'' orders in bankruptcy 
where the bankruptcy court approves payment of pre-petition amounts due 
to certain vendors whose goods or services are critical to the debtor's 
operations during the bankruptcy process. To the extent that 
operational contracts and other critical agreements are obligations of 
subsidiaries of the bridge financial company, they would not be 
affected by the appointment of the FDIC as receiver of the holding 
company under the SPOE strategy. The FDIC is interested in commenters' 
views on whether there should be further limits or other ways to assure 
creditors of our prospective use of disparate treatment.

Use of the OLF

    Another issue is that the existence of the OLF and the FDIC's 
ability to access it in a resolution might be considered equivalent to 
a public ``bail-out'' of the company. There are a number of points to 
be made in this regard.
    From the outset, the bridge financial company would be created by 
transferring sufficient assets from the receivership to ensure that it 
is well-capitalized. The well-capitalized bridge financial company 
should be able to fund its ordinary operations through customary 
private market sources. The FDIC's explicit objective is to ensure that 
the bridge financial company can secure private-sector funding as soon 
as possible after it is established and, if possible, avoid any use of 
the OLF.
    It might be necessary, however, in the initial days following the 
creation of the bridge financial company for the FDIC to use the OLF to 
provide limited funding or to guarantee borrowings to the bridge 
financial company in order to ensure a smooth transition for its 
establishment. The FDIC expects that OLF guarantees or funding would be 
used only for a brief transitional period, in limited amounts with the 
specific objective of discontinuing its use as soon as possible.
    OLF resources can only be used for liquidity purposes, and may not 
be used to provide capital support to the bridge company. OLF 
borrowings would be fully secured through the pledge of assets of the 
bridge financial company and its subsidiaries. The OLF is to be repaid 
ahead of other general creditors of the Title II receivership making it 
likely that it would be repaid out of the sale or refinancing of the 
receivership's assets. In the unlikely event that these sources are 
insufficient to repay the borrowings, the receiver has the authority to 
impose risk-based assessments on eligible financial companies--bank 
holding companies with $50 billion or more in total assets and nonbank 
financial companies designated by the Financial Stability Oversight 
Council--to repay the Treasury. Section 214(c) of the Dodd-Frank Act 
requires that taxpayers shall bear no losses from the exercise of any 
authority under Title II.
    The FDIC is interested in commenters' views on the FDIC's efforts 
to address the liquidity needs of the bridge financial company.

Funding Advantage of SIFIs

    SIFIs have a widely perceived funding advantage over their smaller 
competitors. This perception arises from a market expectation that a 
SIFI would

[[Page 76623]]

receive public support in the event of financial difficulties. This 
expectation causes unsecured creditors to view their investments at a 
SIFI as safer than at a smaller financial institution, which is not 
perceived as benefitting from an expectation of public support. One 
goal of the SPOE strategy is to undercut this advantage by allowing for 
the orderly liquidation of the top-tier U.S. holding company of a SIFI 
with losses imposed on that company's shareholders and unsecured 
creditors. Such action should result in removal of market expectations 
of public support.
    The successful use of the SPOE strategy would allow the 
subsidiaries of the holding company to remain open and operating. As 
noted, losses would first be imposed on the holding company's 
shareholders and unsecured creditors, not on the unsecured creditors of 
subsidiaries. This is consistent with the longstanding source of 
strength doctrine which holds the parent company accountable for losses 
at operating subsidiaries.
    This outcome raises issues about whether creditors, including 
uninsured depositors, of subsidiaries of SIFIs would be inappropriately 
protected from loss even though this protection comes from the 
resources of the parent company and not from public support. Creditors 
and shareholders must bear the losses of the financial company in 
accordance with statutory priorities, and if there are circumstances 
under which the losses cannot be fully absorbed by the holding 
company's shareholders and creditors, then the subsidiaries with the 
greatest losses would have to be placed into receivership, exposing 
those subsidiary's creditors, potentially including uninsured 
depositors, to loss. An operating subsidiary that is insolvent and 
cannot be recapitalized might be closed as a separate receivership. 
Creditors, including uninsured depositors, of operating subsidiaries 
therefore, should not expect with certainty that they would be 
protected from loss in the event of financial difficulties.
    The FDIC is interested in commenters' views on the perceived 
funding advantage of SIFIs and the effect of this perception on non-
SIFIs. Specifically, does the potential to use the OLF in a Title II 
resolution create a funding advantage for a SIFI and its operating 
companies? Would any potential funding advantage contribute to 
consolidation among the banking industry that otherwise would not 
occur? Additionally, are there other measures and methods that could be 
used to address any perceived funding advantage?

Capital and Debt Levels at the Holding Company

    The SPOE strategy is intended to minimize market disruption by 
isolating the failure and associated losses in a SIFI to the top-tier 
holding company while maintaining operations at the subsidiary level. 
In this manner, the resolution would be confined to one legal entity, 
the holding company, and would not trigger the need for resolution or 
bankruptcy across the operating subsidiaries, multiple business lines, 
or various sovereign jurisdictions. For this resolution strategy to be 
successful, it is critical that the top-tier holding company maintain a 
sufficient amount of equity and unsecured debt that would be available 
to recapitalize (and insulate) the operating subsidiaries and allow 
termination of the bridge financial company and establishment of NewCo 
(or NewCos). In a resolution, the holding company's equity and debt 
would be used to absorb losses, recapitalize the operating 
subsidiaries, and allow establishment of NewCo (or NewCos).
    The discussion of the appropriate amount of equity and unsecured 
debt at the holding company that would be needed to successfully 
implement a SPOE resolution has begun. Regulators are considering 
minimum unsecured debt requirements in conjunction with minimum capital 
requirements for SIFIs. In addition, consideration of the appropriate 
pre-positioning of the proceeds from the holding company's debt 
issuance is a critical issue for the successful implementation of the 
SPOE strategy.
    The FDIC is interested in commenters' views on the amount of equity 
and unsecured debt that would be needed to effectuate a SPOE resolution 
and establish a NewCo (or NewCos). Additionally, the FDIC seeks comment 
on what types of debt and what maturity structure would be optimal to 
effectuate a SPOE resolution. The FDIC notes that there is a long-
standing debate over the efficacy of using risk-based capital when 
determining appropriate and safe capital levels. The FDIC is interested 
in commenters' views whether the leverage ratio would provide a more 
meaningful measure of capital during a financial crisis where 
historical models have proven to be less accurate.

Treatment of Foreign Operations of the Bridge Financial Company

    Differences in laws and practices across sovereign jurisdictions 
complicate the resolvability of a SIFI. These cross-border differences 
include settlement practices involving derivative instruments, credit 
swaps, and payment clearing-and-processing activities. In the critical 
moment of a financial crisis, foreign authorities might ring-fence a 
SIFI's operations in their jurisdictions to protect their interests, 
which could impair the effectiveness of the SPOE strategy. A key 
challenge for a successful resolution of a SIFI under the SPOE 
strategy, therefore, will be to avoid or minimize any potential 
negative effects of ring fencing of the SIFI's foreign operations by 
foreign supervisors in those jurisdictions.
    SIFIs operate in foreign jurisdictions primarily through two forms 
of organization--subsidiaries or branches of the IDI. Foreign 
subsidiaries are independent entities, separately chartered or licensed 
in their respective countries, with their own capital base and funding 
sources. As long as foreign subsidiaries can demonstrate that they are 
well-capitalized and self-sustaining, the FDIC would expect them to 
remain open and operating and able to fund their operations from 
customary sources of credit through normal borrowing facilities. As to 
the issue of foreign branches, their operations are included in the 
U.S. IDI's balance sheet, and there would be no reason to expect the 
operations of the foreign branches to change since the parent IDI 
remains open and well-capitalized under the SPOE strategy. The FDIC is 
working with foreign regulators to ensure that a SIFI's operating 
subsidiaries and foreign branches of the IDI would remain open and 
operating while a resolution of the parent holding company proceeds.
    A multiple point of entry (MPOE) resolution strategy has been 
suggested as an alternative to the SPOE resolution strategy. To 
minimize possible disruption to the company and the financial system as 
a whole, an MPOE resolution involving the cross-border operations of a 
SIFI would require having those operations housed within subsidiaries 
that would be sufficiently independent so as to allow for their 
individual resolution without resulting in knock-on effects. 
Independent subsidiaries could also arguably facilitate a SPOE strategy 
by having well-capitalized subsidiaries with strong liquidity that 
would continue operating while the parent holding company was placed in 
resolution.
    A subsidiarization requirement could resolve some problems 
associated with the need for international coordination. However, it is 
not clear that such a requirement would resolve all of the issues 
associated with resolving a SIFI with foreign operations, such as those 
of interconnectedness or of needing the

[[Page 76624]]

cooperation of foreign authorities to maintain certain services or 
operations.
    The FDIC would welcome comments on whether a subsidiarization 
requirement would facilitate the resolution of a SIFI under the MPOE or 
SPOE strategies, or under the Bankruptcy Code. The FDIC would also 
welcome comments that address the potential advantages and 
disadvantages for resolvability of a SIFI of a requirement that SIFIs 
conduct their foreign operations through subsidiaries and whether a 
subsidiarization requirement for foreign operations would reduce the 
likelihood of ring fencing and improve the resolvability of a SIFI. 
Additionally, would a subsidiarization requirement work to limit the 
spread of contagion across jurisdictions in a financial crisis, and 
what are the potential costs (financial and operational) of requiring 
subsidiarization?
    The FDIC would also welcome comments on the impact a branch 
structure might have on a banking organization's ability to withstand 
adverse economic conditions that do not threaten the viability of the 
group, for example, by enabling the organization to transfer funds from 
healthy affiliates to others that suffer losses in a manner that is 
consistent with 23A and 23B of the Federal Reserve Act.\11\ In 
addition, the FDIC requests comments on the extent to which a branch 
model might provide flexibility to manage liquidity and credit risks 
globally and whether funding costs for these institutions might be 
lower under the branch structure.
---------------------------------------------------------------------------

    \11\ Sections 23A and 23B restrict the ability of an insured 
depository institution to fund an affiliate through direct 
investment, loans, or other covered transactions that might expose 
the insured depository institution to risk.
---------------------------------------------------------------------------

Cross-Border Cooperation

    Cross-border cooperation and coordination with foreign regulatory 
authorities are a priority for the successful execution of the SPOE 
strategy. The FDIC continues to work with our foreign counterparts and 
has made significant progress in the last three years. The FDIC has had 
extensive engagement with authorities in the United Kingdom and has 
issued a joint paper with the Bank of England describing our common 
strategic approach to systemic resolution. Working relationships have 
also been developed with authorities in other countries, including 
Switzerland, Germany and Japan. The FDIC has established a joint 
working group on resolution and deposit insurance issues with the 
European Commission and continues to work with the Financial Stability 
Board and its Resolution Steering Group.
    An important example of cross-border coordination on resolution 
issues is a joint letter the FDIC, the Bank of England, Bundesanstalt 
f[uuml]r Finanzdienstleistungsaufsicht (BaFin) and the Swiss Financial 
Market Supervisory Authority (FINMA) sent to the International Swaps 
and Derivatives Association (ISDA) on November 5, 2013. The letter 
calls for standardizing ISDA documentation to provide for a short-term 
suspension of early termination rights and other remedies with respect 
to derivatives transactions following the commencement of insolvency or 
resolution proceedings or exercise of a resolution power with respect 
to a counterparty or its specified entity, guarantor, or credit support 
facility.
    The FDIC welcomes comment on the most important additional steps 
that can be taken with foreign regulatory authorities to achieve a 
successful resolution using the SPOE strategy.

Additional Questions

    In addition to the issues highlighted above, comments are solicited 
on the following:
    Securities-for-Claims Exchange. This Notice describes how NewCo (or 
NewCos) would be capitalized by converting the debt of the top-tier 
holding company into NewCo (or NewCos) equity. Are there particular 
creditors or groups of creditors for whom the securities-for-claims 
exchange strategy would present a particular difficulty or be 
unreasonably burdensome?
    Valuation. This Notice describes how the assets of the bridge 
financial company would be valued and how uncertainty regarding such 
valuation could be addressed. Would the issuance to creditors of 
contingent value securities, such as warrants, be an effective tool to 
accommodate inevitable uncertainties in valuation? What 
characteristics--such as, term or option pricing, among others--would 
be useful in structuring such securities, and what is an appropriate 
methodology to determine these characteristics?
    Information. This Notice recognizes the importance of financial 
reporting to the resolution process. What information, reports or 
disclosures by the bridge financial company are most important to 
claimants, the public, or other stakeholders? What additional 
information or explanation about the administrative claims process 
would be useful in addition to the information already provided by 
regulation or this Notice?
    Effectiveness of the SPOE Strategy. This Notice describes factors 
that would form the basis of the initial determination as to whether 
the SPOE strategy would be effective for a particular covered financial 
company. Are there additional factors that should be considered? Is 
there an alternative to the SPOE strategy that would, in general, 
provide better results considering the goals of mitigating systemic 
risk to the financial system and ensuring that taxpayers would not be 
called upon to bail out the company?

    Dated at Washington, DC, this 10th day of December, 2013.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2013-30057 Filed 12-17-13; 8:45 am]
BILLING CODE 6741-01-P