The Meeting of the Systemic Resolution Advisory Committee 

of the 

Federal Deposit Insurance Corporation 

Held in the Board Room 

Federal Deposit Insurance Corporation Building 

Washington, D.C. 

Open to Public Observation 

January 25, 2012 8:45 A.M. 

The meeting of the FDIC Systemic Resolution Advisory 

Committee ("Committee") was called to order by Martin J. 

Gruenberg, Acting Chairman, Federal Deposit Insurance 

Corporation ("Corporation" or "FDIC") Board of Directors. 

The members of the Committee present at the meeting were: 

Anat R. Admati, Professor, Graduate School of Business, Stanford 

University, Stanford, California; Michael Bradfield, 

Mercersburg, Pennsylvania; H. Rodgin Cohen, Senior Chairman, 

Sullivan & Cromwell LLP, New York, New York; William H. 

Donaldson, Chairman, Donaldson Enterprises, New York, New York; 

Peter R. Fisher, Senior Managing Director, BlackRock, New York, 

New York; Janine Guillot, Chief Operating Investment Officer, 

Ca1PERS, Sacramento, California; Richard J. Herring, Jacob Safra 

Professor of International Banking and Professor of Finance, The 

Wharton School, University of Pennsylvania, Philadelphia, 

Pennsylvania; Simon Johnson, Ronald A. Kurtz Professor of 

Entrepreneurship, MIT Sloan School of Management, Cambridge, 

Massachusetts; Donald Kohn, Senior Fellow, Economic Studies 

Program, Brookings Institution, Washington, D.C.; John A. 

Koskinen, Non-Executive Chairman of the Board of Freddie Mac, 

Washington, D.C.; Jerry Patchan, Hunting Valley, Ohio; John S. 

Reed, Chairman, Corporation of MIT, New York, New York; Gary H. 

Stern, Director, The Depository Trust and Clearing Corporation 

(DTCC), The Dolan Company, and the National Council on Economic 

Education, New York, New York; and Paul A. Volcker, Chairman, 

Trustees of the Group of 30, New York, New York. 

24 

January 25, 2012 
25 

Members Michael Bodson, Chief Operating Officer, The 

Depository Trust and Clearing Corporation (DTCC), New York, New 

York; Charles A. Bowsher, U.S. Comptroller General (Retired) and 

Chairman and Member of the Research Advisory Council of Glass, 

Lewis & Company, LLC, Bethesda, Maryland; Raghuram G. Rajan, 

Eric J. Gleacher Distinguished Service Professor of Finance, 

Booth School of Business, University of Chicago, Chicago, 

Illinois; Deven Sharma, President, Standard and Poor’s, New 

York, New York; and David J. Wright, EU Visiting Fellow, St. 

Antony’s College, Oxford, United Kingdom, were absent from the 

meeting. 

Members of the FDIC Board of Directors present at the 

meeting were: Martin J. Gruenberg, Acting Chairman and Thomas J. 

Curry, Director (Appointive). 

Corporation staff who attended the meeting included: 

Richard T. Aboussie, James H. Angel, Jr., Steven 0. App, M.P. 

Azevedo, David Barr, Valerie Best, John E. Bowman, Annmarie H. 

Boyd, Richard A. Brown, Jason C. Cave, Rebecca K. Cole, Kymberly 

K. Copa, Carolyn D. Curran, Christine M. Davis, Patricia B. 

Devoti, Bret D. Edwards, Diane L. Ellis, Robert E. Feldman, 

Ralph E. Frable, Alice C. Goodman, Andrew Gray, Shannon N. 

Greco, Greg Hernandez, James J. Hone, Craig R. Jarvill, Kenyon 

T. Kilber, Michael H. Krimminger, Ellen W. Lazar, Alan W. Levy, 

Susan Lovelace, Christopher Lucas, Rae-Ann Miller, Arthur J. 

Murton, Gregory H. Muse, Paul Nash, Richard Osterman, Mark E. 

Pearce, Russell G. Pittman, Stephen A. Quick, Barbara A. Ryan, 

Jon T. Rymer, John F. Simonson, Christopher Spoth, Marc Steckel, 

Maureen E. Sweeney, Jesse 0. Villarreal, David Wall, James C. 

Watkins, and James R. Wigand. 

Barbara Bouchard, Deputy Associate Director, Federal 

Reserve Board, Jacob Czarnick, Partner, Perella Weinberg LP, Raj 

Date, Deputy Director, Consumer Financial Protection Bureau, 

Amias Gerety, Deputy Assistant Secretary for Financial Stability 

Oversight Council, Department of the Treasury, Jerome Powell, 

Visiting Scholar, Bipartisan Policy Center, William A. Rowe, 

III, Deputy to the Chief of Staff and Liaison to the FDIC, 

Office of the Comptroller of the Currency, and Charles Taylor, 

Deputy Comptroller for Capital and Regulatory Policy, Office of 

the Comptroller of the Currency, were also present at the 

meeting. 

Acting Chairman Gruenberg opened and presided at the 

meeting. He began by thanking the Committee members for 

agreeing to serve on the Committee, noting that it is a 

January 25, 2012 
26 

remarkably distinguished group of individuals, which reflects 

the importance of the responsibility that the FDIC has under the 

Dodd-Frank Wall Street Reform and Consumer Protection Act (the 

"Dodd-Frank Act") for the resolution of systemic financial 

institutions. He advised that the FDIC has been given three 

important new responsibilities relating to the resolution of 

systemic financial companies: Title II of the Dodd-Frank Act 

("Title II") provides the FDIC with the authority to place any 

financial company deemed to be of systemic consequence into a 

receivership process, including the holding company and its 

affiliates, which is central to developing a capacity to manage 

an orderly resolution of a systemic financial company; Title I 

of the Dodd-Frank Act ("Title I") also requires the systemic 

financial companies to develop their own resolution plans or 

so-called "living wills;" and the Dodd-Frank Act explicitly 

directs the FDIC to coordinate with the foreign supervisors of 

U.S. systemic financial companies with regard to their foreign 

operations. Emphasizing that the FDIC has been working 

diligently to carry out these new responsibilities in the past 

18 months since the enactment of the Dodd-Frank Act, Acting 

Chairman Gruenberg advised that the FDIC has established a new 

Office of Complex Financial Institutions ("OCFI"), which has 

responsibility for carrying out these new authorities; that the 

FDIC has completed the final core rulemaking for implementation 

of the FDIC’s Title II receivership responsibilities; that the 

FDIC has completed the final rulemaking jointly with the Board 

of Governors of the Federal Reserve System ("Federal Reserve") 

for the living wills requirements under Title I; and that the 

FDIC has actively engaged foreign supervisors, on both a 

multilateral basis through the Financial Stability Board of the 

G20 countries and the Basel Committee on Banking Supervision 

("Basel Committee") and a bilateral basis with key foreign 

supervisors, regarding the foreign operations of systemic 

financial institutions. 

Acting Chairman Gruenberg then provided an overview of the 

meeting agenda, advising that it will focus on reporting to the 

Committee on the FDIC’s three key activities that he described 

regarding the resolution of systemic financial institutions, 

with the morning session discussing the approach the FDIC has 

developed regarding a strategy for the resolution of systemic 

financial companies under Title II, and the afternoon session 

focusing on the FDIC’s progress regarding implementation of the 

living wills process, as well as the FDIC’s engagements 

internationally relating to resolution planning. He then turned 

the discussion over to the members of the first panel: James R. 

Wigand, Director, OCFI; Michael H. Krimminger, General Counsel; 

January 25, 2012 
27 

and John F. Simonson, Deputy Director, Systemic Resolution 

Planning and Implementation, OCFI. 

Mr. Wigand advised that the meeting’s first panel would 

provide a brief overview of the FDIC’s legal authorities under 

Title II for an orderly liquidation of a systemically important 

financial company. He then turned the discussion over to Mr. 

Krimminger, who began by emphasizing that the FDIC’s resolution 

authority under the Title II framework provides the tools to end 

"too big to fail;" that it is important to achieve market 

discipline in advance of any future crisis; that it is essential 

that creditors and market participants understand that the 

Dodd-Frank Act bans taxpayer bailouts; and that there is a 

credible plan to resolve the largest financial companies. He 

advised that the panelists would discuss the resolution options 

that can provide an orderly resolution that preserves value, 

reduces contagion, and results in creditors and shareholders 

bearing the losses, which is an important step toward 

eliminating the past expectation of a "too big to fail" policy. 

With regard to the resolution authorities, Mr. Krimminger 

noted that there are two primary areas of the legal framework 

that interrelate with each other in the Dodd-Frank Act. He 

explained that first area, Title I, is a critical component that 

focuses on reducing the systemic significance or systemic risk 

posed by financial institutions by providing the Federal Reserve 

with enhanced supervision authority for bank holding companies 

over $50 billion in size and enhanced prudential supervision 

authority for nonbank financial companies designated by the 

Financial Stability Oversight Council ("FSOC"), including the 

authority to impose credit limits, as well as additional capital 

and liquidity requirements. Another very important area for the 

preparation of Title II resolutions, he continued, is the living 

wills regulation that the FDIC issued last year jointly with the 

Federal Reserve pursuant to section 165(d) of the Dodd-Frank 

Act, which requires the largest financial companies, and those 

designated by the FSOC, to prepare living wills that would 

demonstrate how these companies could be resolved in a rapid and 

orderly fashion under the Bankruptcy Code. 

Mr. Krimminger then presented an overview of the Title II 

orderly resolution authority, noting that there are five primary 

elements: (1) the applicability and appointment authority under 

Title II; (2) the authority for immediate and decisive action; 

(3) the ability to provide continuity through the bridge 

financial companies and related authorities; (4) the access to 

liquidity; and (5) the prohibition on taxpayer bailouts. He 

January 25, 2012 
W. 

advised that, with respect to the applicability and appointment 

process, a Title II resolution is only a fall-back option, and 

that the key issue is whether a resolution under Title II would 

help mitigate the systemic risk that might be created by an 

insolvency under the Bankruptcy Code, which is the primary 

default option to resolve large financial companies; that a 

Title II resolution is limited to potentially systemic financial 

companies; that advance planning is a key element for an 

effective resolution process; that there is a special process 

requiring that the Federal Reserve and the FDICor, if the 

company is a broker-dealer, the Securities and Exchange 

Commission ("SEC")make a recommendation to the Secretary of the 

Treasury, who, in consultation with the President, would make 

the final decision about whether to put an institution into a 

Title II resolution; and that there is a provision for judicial 

review of the Secretary of the Treasury’s decision. Regarding 

the authority to take immediate and decisive action, Mr. 

Krimminger advised that the ability to take control of the 

financial company, continue its operations, make sales or 

transfers of assets, deal with liabilities, and resolve claims 

immediately, is a critical component that will both preserve 

value and reduce the potential contagion effects caused by the 

company’s failure; that the ability to stay the immediate 

netting of derivatives contractswhich can result in the 

termination of the contracts and dumping of collateral 

supporting those contracts into an illiquid marketis critical 

to allow a transfer of those contracts over to a bridge or to 

another third party that can be a credible, viable counterparty; 

and that creditor protections exist under Title II that are 

consistent with those that exist under the Bankruptcy Code, 

including provisions for minimum payments and judicial 

determination of claims. 

Turning to the key element of continuity through a bridge 

financial company, Mr. Krimminger emphasized that a bridge 

financial company provides a mechanism for the maintenance and 

continuity of critical operations to maximize value and mitigate 

any systemic risks; that it provides additional time for 

potential buyers or investors to understand how the company is 

going to operateessentially providing an extended marketing 

period; that it is a temporary institution; that it has broad 

authority to operate the business and transfer assets and 

liabilities; that it has broad funding options to support 

continued operation of subsidiaries, including cash from 

operations producing cash flow, the ability to provide 

guarantees and assurances, and the Orderly Liquidation Fund, 

which is a source of funding from the Treasury Department; and 

January 25, 2012 
29 

that there are very flexible resolution options under the bridge 

authority, such as a merger of the bridge financial company with 

another company, a charter conversion in which the bridge 

financial company is converted into a charter of a recapitalized 

company, a stock sale of the bridge financial company, or a 

traditional purchase and assumption transaction involving a sale 

of assets and assumption of liabilities. He stated that another 

key element of the Title II orderly resolution authority is the 

access to liquidity provided by the Orderly Liquidation Fund, 

since immediate access to liquidity is vital to preserve value 

and limit systemic contagion; that Title II creates the Orderly 

Liquidation Fund to carry out the Title II resolutions through a 

line of credit provided by the U.S. Department of the Treasury; 

that all of the funding must be repaid by funds from the 

receivership, claw back of funds from creditors, or assessments 

against the industry; and that the Orderly Liquidation Authority 

cannot be used to provide assistance in a way that would prevent 

the closure or resolution of a financial company. The final key 

element of Title II, he explained, is that the Dodd-Frank Act 

expressly prohibits taxpayer bailouts by requiring full 

repayment of the Orderly Liquidation Fund by the creditors and, 

if necessary, an assessment on the industry to ensure that 

taxpayers do not bear the losses for any resolution transaction. 

During the panelists’ discussion of the FDIC’s legal 

authorities for an orderly liquidation under Title II, Committee 

members commented on a number of issues, including guarantees 

and funding to support the continued operation of the bridge 

financial company and its subsidiaries, repayment of the Orderly 

Liquidation Fund, and continuity of operations. In response to 

a question from Ms. Admati regarding who would provide any 

guarantees to support continued operations, Mr. Krimminger 

advised that the guarantees could be provided by the FDIC as 

manager of the Orderly Liquidation Fund that is backed by the 

assets of the company, noting that, in many cases, there would 

be guarantees of continued operations of subsidiaries from the 

holding company level, which would be done by the bridge 

financial company, backed by the access to the funding provided 

by the Orderly Liquidation Fund and paid back from the sale of 

assets. He also noted that there is a limit on the amount 

available from the Orderly Liquidation Fundup to 90 percent of 

the fair value of the assets available for repayment over the 

course of the resolutionbut that guarantees and cash flows of 

the institution, together with other funding techniques using 

the bridge financial company, expand the ability to provide 

funding to the institution. Mr. Krimminger, responding to Mr. 

Herring’s question about whether it was feasible to employ the 

January 25, 2012 
backup strategy of an assessment on the industry for repayment 

of the Orderly Liquidation Fund without causing further distress 

on the industry, explained that, before there would be an 

assessment against the industry, all of the capitalthe 

institution’s shareholder equity, subordinated debt, and general 

creditorswould have to be wiped out, which is extremely 

unlikely, and there would have to be a claw back from creditors. 

Noting that any assessment against the industry must be 

conducted within 

60 months, Mr. Krimminger added that any assessment could be 

structured for payment over an extended period of time. Mr. 

Herring suggested that, because the government has first 

priority in repayment, there is risk to the creditors associated 

with the continuity of operations in a Title II resolution. In 

response, Mr. Krimminger emphasized that the purpose of the 

Orderly Liquidation Fund is to provide liquidity to preserve 

liquidity and minimize systemic risk; that one of the challenges 

in looking at the resolution of any one of these entities, whether 

or not it would be through a process which more closely resembles 

a Chapter 11 reorganization under the Bankruptcy Code or a 

Chapter 7 liquidation, is that, in both instances, given the type 

of services and operations these companies provide, an immediate 

cessation of those activities would clearly pose systemic risk; 

and that, regardless of the ultimate composition or structure of 

the surviving entity and how those assets are treated, there has 

to be some continuity of operations and businesses for some period 

of time. 

Mr. Wigand then introduced the next panel discussion on the 

resolution strategy for a systemically important financial 

company, advising that the panelists would provide a general 

resolution transaction overview and outline the structural 

framework, financial framework, and governance of a resolution. 

He began the presentation by describing a hypothetical financial 

company developed by the FDIC staff as a mechanism for 

challenging the various resolution strategies and approaches for 

resolving a systemically important financial company under Title 

II, noting that the hypothetical company is an amalgamation of 

the issues, resolution challenges, and structures observed in 

existing financial companies of this size and complexity of 

systemic financial institutions, with multiple lines of 

businessprimarily banking, capital markets, asset management, 

and transaction servicesand over a thousand subsidiaries 

operating in numerous countries throughout the world. 

Emphasizing that any resolution strategy would have to be 

developed using the specific facts, characteristics of the 

financial company, and the financial environment at the point in 

January 25, 2012 
31 

time that a financial company fails, Mr. Wigand briefly outlined 

a strategy for a Title II resolution with a single receivership 

at the parent company entry point and a recapitalization. He 

explained that, following the decision to put the financial 

company into the Title II resolution process, the FDIC would be 

appointed receiver for the parent company; a claims process 

would be started to handle claims that arise from the company’s 

failure; and a purchase and assumption transaction would be used 

to transfer the assetsprimarily investments in subsidiaries and 

loans to subsidiaries of the parent companyand certain 

liabilities of the failed company from the receivership to a 

bridge holding company, which would operate for a period of 

time. In a single-entry receivership model, he explained, only 

the parent holding company would be placed into receivership, 

with its creditors being subject to haircuts; the equity solvent 

subsidiaries would remain open and continue to operate; and the 

bridge holding company would serve as a source of strength, as 

necessary, to recapitalize subsidiaries by downstreaming 

liquidity to subsidiaries through intra-company advances. He 

advised that, ultimately, the bridge holding company would be a 

new, recapitalized company; that this resolution framework 

parallels the framework of a Chapter 11 reorganization in which a 

company fails, undergoes a reorganization process with a period of 

time to sort out claims in which the value of the company is 

redistributed, and then exits that process as a viable new 

company. 

Acting Chairman Gruenberg then announced that the meeting 

would briefly recess. Accordingly, at 10:50 a.m., the meeting 

stood in recess. 

* * * * * * * 

The meeting reconvened at 11:10 a.m. the same day, at which 

time Mr. Wigand turned the discussion over to Mr. Krimminger to 

address the structural framework for a Title II resolution of a 

systemically important financial company. Mr. Krimminger began 

by explaining that, following the appointment of the FDIC as 

receiver of the parent holding company and a transfer of the 

assets and operations to the bridge holding company, there are a 

number of different options for exiting the resolution process, 

including a typical purchase and assumption transaction, merger, 

charter conversion, or stock sale transaction. He briefly 

described an approach to exit the resolution process that has 

been much discussed, both internationally and domestically, 

which is the concept of "bail-in"through which the debt or 

creditor claims of the original company are converted into 

January 25, 2012 
32 

equity of a newly-chartered companythat would require leaving 

the subordinated debt and equity of the original entity in the 

receivership; establishing a newly-chartered holding company 

("NewCo") to hold a trust consisting of the debt and creditor 

claims from the original receivership; and then, through a 

charter conversion of the bridge holding company into NewCo or a 

purchase and assumption transaction, selling the assets and 

operations of the bridge holding company to NewCo. He noted 

that this approach creates a new stand-alone entity that would 

be fully-capitalized by the assets from the bridge holding 

company and the conversion of the debt and creditor claims into 

equity of NewCo; that, if done through a charter conversion or 

some other type of stock transaction between the bridge holding 

company and NewCo rather than a purchase and assumption 

transaction, would not create additional concentration in the 

marketplace that otherwise could result from selling the bridge 

holding company to another large financial company; and that 

NewCo would be a regulated entity, such as a holding company 

structure regulated by the Federal Reserve, with supervisory 

agreements determining the conditions under which it would begin 

to operate. 

Next, Mr. Simonson addressed the financial framework and 

recapitalization of NewCo, emphasizing that, as in the case of a 

Chapter 11 bankruptcy, valuation is a key component of the 

process; that the valuation will determine the overall size of 

the "pie" to be distributed to claimants and identify where the 

breakpoint is between creditor classes; and that the valuation 

will inform the FDIC on how to recapitalize NewCo to ensure that 

it is a well-capitalized entity when it is returned to the 

private sector. He advised that the valuation is determined on 

an enterprise basis with the evaluation of key business lines 

and, in some cases, the evaluation of key asset portfolios 

within those business lines; and that, through the claims 

process, it is then determined where each claimant is in the 

creditor stack and, within each priority class, what the 

appropriate size of the pie is for the particular claimant. 

Mr. Simonson then illustrated a hypothetical recapitalization of 

NewCo in which, after determining a conservative level of 

capital for NewCo, unsecured creditors would receive a mix of 

securitiesnew debt instruments, convertible debt instruments, 

and equityin exchange for their claims, and former subordinated 

debt and equity holders would receive either call options on 

equity to be distributed to senior classes, or warrants or other 

subordinate equity interests. Acting Chairman Gruenberg 

emphasized that that it is critical to integrate the supervisory 

and recovery planning process for these systemic financial 

January 25, 2012 
33 

institutions with the resolution planning process, because the two 

are related for a number of reasons discussed by the panelists. 

He noted that, for example, for the model that has been described, 

it really will depend on the level of unsecured debt at the 

holding company level, which has to be an issue that comes into 

play in the supervisory and recovery planning elements; and that, 

in developing this model, the FDIC has been engaged at the most 

senior levels with all of the other regulatory agencies to discuss 

this process and establish a common base, both of understanding 

and strategic approach. 

Mr. Simonson then addressed the issue of governance, 

emphasizing that it is critical to get the governance issues 

correct, to implement the governance quickly, and to provide 

clarity regarding the roles, responsibilities, and authorities 

of each party involved. He advised that, when the systemically 

important financial institution is placed into receivership, the 

FDIC will immediately be appointing a new Chief Executive 

Officer ("CEO"), who would be responsible for the day-to-day 

operations of the bridge holding company, and a board of 

directors, who would provide the appropriate oversight and 

development of a strategy for the bridge holding company. He 

also advised that, as part of the funding provided through the 

Orderly Liquidation Fund, the bridge holding company would enter 

into a credit agreement that would contain certain operating 

covenants and restrictions to ensure the proper use and 

repayment of any funds; that, because the systemically important 

financial institution failed for a reason, there would be a need 

for a supervisory agreement to take the corrective action over 

an appropriate period of time, such as divestment or enhanced 

risk management; and that a trust would be established to hold 

the securities of the bridge holding company and ensure that the 

claims process is done appropriately and that the securities of 

NewCo are distributed to the claimants. He indicated that there 

may also be a creditors committee, as a mechanism for the key 

claimants to have some input regarding the claims process and 

distribution of the securities of NewCo, since it is anticipated 

that the claimants will ultimately become the new shareholders 

of NewCo when the bridge holding company is returned to the 

private sector. 

In their discussion of the Title II resolution strategy and 

transaction overview, Committee members addressed a number of 

issues, including the management and governance of the bridge 

financial company and NewCo, continuity of subsidiary 

operations, and selection and maintenance of a pool of potential 

CEOs and board of director candidates. Mr. Herring commented 

January 25, 2012 
34 

that one significant difference of a Title II resolution from a 

Chapter 11 reorganization is that management is not retained in 

a Title II resolution, in response to which Mr. Wigand advised 

that the Dodd-Frank Act requires that the parties who are 

culpable for the institution’s failure be replaced; Mr. Wigand 

also suggested that the marketplace also will require 

replacement of the institution’s management, because the new 

company will not be viewed as viable if the culpable parties are 

still there. Mr. Johnson strongly disagreed with the suggestion 

that the marketplace can be relied on to push out culpable 

individuals, noting that there have been many instances in which 

the marketplace has allowed management in the financial sector 

to remain because of their knowledge and expertiseor the lack 

of any available substitutesto prevent further loss of value, 

and that, unless there are substitutes from within or outside of 

the institution that can replace management that is dismissed, 

the institution will not be credible. Acting Chairman Gruenberg 

commented that the expectation is that the senior executives and 

board of directors will be replaced, and that one of the key 

challenges in managing an orderly transition is to identify a 

group of individuals who would be available to come in and 

assume, at least on a short-term basis, the operations of the 

new company. Both Mr. Koskinen and Ms. Admati commented on the 

issue of how culpability is defined, with Ms. Admati suggesting 

that it will be difficult to determine culpability in some 

circumstances, such as where a decision to take a risk was made 

by an individual and may have been a good, rational decision on 

their part, but had a bad outcome. Mr. Reed noted that, in his 

experience, senior managers at the center of the big problems 

typically are aware they will not be retained, and suggested 

that arrangements would have to be negotiated with more junior 

individuals to retain them as consultants for a period of time. 

Noting that, in the case of AIG, there were individuals who had 

a role in getting the institution into trouble but were retained 

because they were needed to unwind positions and would not stay 

unless they were paid a very high level of compensation, Mr. 

Bradfield suggested that the FDIC will face the same problem 

and, therefore, should have a policy in place to deal with the 

crucial issues of bonuses and compensation. Mr. Fisher 

suggested that considerable attention be given to defining the 

expectations of the CEO and the timeframe for achieving those 

expectations before a pool of qualified CEO candidates can be 

considered, and that it may be helpful to retain an executive 

search agency to identify potential CEO candidates. Commenting 

on his experience in dealing with the challenges of putting a 

CEO and board of directors in place in a timely manner, Mr. 

Koskinen suggested that clear authorities and delegations for 

January 25, 2012 
35 

the CEO and the board of directors, together with templates for 

D&O insurance and compensation, should be developed in advance. 

In response to Ms. Guillot asking about the role of the FDIC in 

the process, particularly what the FDIC’s relationship with the 

new CEO and board of directors would be and whether it would 

have any sort of veto authority on decisions, Mr. Krimminger 

stated that, in his personal opinion, there would be phases of 

the process, such as when the bridge financial company is in 

existence, during which the FDIC would need to have a 

significant level of control because it is providing the 

funding, and other phases, such as those that involve NewCo, 

that would present a different issue; Mr. Simonson emphasized 

that the Orderly Liquidation Funding agreement covenants and any 

supervisory agreements would also impose constraints on control. 

Noting the critical decisions that will arise for the bridge 

financial company’s operations and subsidiaries, Mr. Cohen 

suggested that any covenants for assistance from the Orderly 

Liquidation Fund be structured as far in advance as possible. 

Noting that the Committee’s discussion of the issues has 

been very helpful, Acting Chairman Gruenberg emphasized that the 

identification of an interim CEO will be crucial to establish 

credibility with the markets and the public; and that developing 

a set of procedures and identifying a pool of individuals who 

could credibly assume that responsibility are critical elements 

of the resolution process. Acting Chairman Gruenberg then 

announced that the meeting would recess for lunch. Accordingly, 

the meeting stood in recess at 12:08 p.m. 

* * * * * * * 

The meeting reconvened at 1:28 p.m. that same day, with Mr. 

Wigand introducing David N. Wall, Assistant General Counsel, 

Complex Financial Institutions Section, Legal Division, and Mr. 

Simonson to discuss the development of living wills and the 

resolution planning process that is being undertaken through 

Title I, as an element of the supervisory framework. Mr. Wall 

began by providing a brief synopsis of two recent FDIC 

rulemakings: a rule promulgated jointly with the Federal Reserve 

Board that implements the requirements established under section 

165(d) of the Dodd-Frank Act (the "section 165(d) rule") that a 

covered company submit a credible and orderly resolution plan to 

the FDIC, Federal Reserve, and the FSOC, which addresses how the 

company would implement a rapid and orderly resolution of the 

company under the Bankruptcy Code; the other is a rule by the 

FDIC that requires a covered insured depository institution to 

submit a resolution plan that addresses how the FDIC as receiver 

January 25, 2012 
36 

could resolve the institution under the Federal Deposit 

Insurance Act ("FDI Act"). He advised that the companies 

covered by the joint section 165(d) rule companies are bank 

holding companies, including foreign banks with U.S. operations, 

with $50 billion or more in total assets, and nonbank financial 

companies designated by the FSOC for enhanced supervision by the 

Federal Reserve; that the resolution plan filing dates are 

staggered, depending on the size of the institution involved, 

with the initial plans for the group of the largest companies 

due on July 1, 2012, the second group’s plans due on July 1, 

2013, and the rest of the plans due on December 31, 2013; and 

that, after the initial resolution plan is filed, there is an 

annual filing requirement depending on the original filing date, 

but that an earlier filing may be required if there is a 

material change in the circumstances of the company. With 

respect to the key components of the resolution plans, Mr. Wall 

advised that the plans must include a strategic analysis of the 

covered company’s plan for an orderly and rapid resolution, 

description of the covered company’s corporate governance 

structure for creating the resolution plan, information 

regarding the overall organizational structure of the company, 

identification of funding and liquidity requirements, 

information concerning the company’s management information 

systems, and description of the interconnectedness and 

interdependencies of the company’s various affiliates. He 

emphasized that the strategic analysis is a critical element of 

the resolution plan that focuses on identifying core business 

lines and critical operations, as well as providing the 

informational content to support the analysis that the franchise 

value can be maintained and critical operations continued. 

Noting that insured depository institutions are not subject 

to the Title II authority, Mr. Wall briefly described the FDIC 

rule, advising that is complementary to the joint section 165(d) 

rule and requires a covered insured depository institution to 

submit annually to the FDIC a resolution plan that would enable 

the FDIC, as receiver for the institution, to resolve the 

institution under the FDI Act at the least cost to the 

institution’s creditors. He advised that the filing deadlines 

for the resolution plans to the FDIC are coordinated with the 

staggered filing dates for the joint section 165(d) resolution 

plans, with filings due on July 1, 2012, through December 31, 

2013; that the plans should focus on facilitating a resolution 

that satisfies three primary concerns: providing depositors with 

access to insured deposits within one day, maximizing the net 

present value return on the assets of the institution, and 

minimizing the loss to the creditors, including the Deposit 

January 25, 2012 
37 

Insurance Fund; that a set of informational submissions are 

required to provide the FDIC with information and data necessary 

for an orderly resolution, as well as a strategic plan that 

provides an analysis and discussion of any particular 

impediments or operational complexities that would inhibit an 

orderly resolution or result in unusual resolution expenses; and 

that the plans must discuss the institution’s interconnectedness 

with its affiliates. He concluded by noting that the 

development of both the joint section 165(d) rule and the FDIC 

rule is expected to be an iterative process, and that they will 

be dynamic documents that require updating and revision. 

Mr. Simonson then provided an update on the process for 

developing and reviewing the resolution plans or "living wills," 

explaining that, through the living wills process, the FDIC and 

the Federal Reserve will be able to collect substantially more 

information on the structure, operations, complexity, 

interconnections, and mapping between legal entities and 

operations than they have been able to collect in the past; and 

that the living wills process also provides additional tools to 

assist the FDIC and the Federal Reserve in their efforts to have 

the systemically important financial institutions operate in a 

more safe and stable manner. Emphasizing that, ultimately, the 

goal of the living wills process is for a covered company to 

have a credible resolution plan, Mr. Simonson advised that the 

information provided through the Title I process and the living 

wills will inform the FDIC and assist in refining the Title II 

planning process; and that the living wills process encourages 

covered companies to identify and simplify complex legal 

structures and interconnections. 

Committee members addressed a number of issues during the 

discussion on the development of living wills and the resolution 

planning process, including the treatment of the U.S. operations 

of foreign institutions, development of credible plans, public 

disclosure of information, and evaluation of the living wills. 

In response to Mr. Volcker asking whether foreign banks with a 

small operation in the U.S. would be covered under the living 

wills rule, Mr. Wall advised that they would be covered if they 

have more than $50 billion in assets; that there are provisions 

for reduced filing requirements with respect to those 

institutions whose U.S. operations are smaller; and that the 

rule’s focus for all foreign institutions is generally on the 

U.S. operations and their interconnectedness with foreign 

operations, primarily on the institution’s impact in the case of 

failure on U.S. financial stability. Mr. Krimminger elaborated 

on this point by advising that the living wills requirement for 

January 25, 2012 
a foreign bank’s small operations in the U.S. would be tailored 

for how that particular operation would be resolved either under 

the Bankruptcy Code, or under the FDI Act if it is an insured 

bank, or under other appropriate law, with the focus on how it 

is integrated into the home country’s resolution planning 

process. Responding to Ms. Admati asking whether the living 

wills process focuses on resolving all of the institution’s 

operations in bankruptcy, Acting Chairman Gruenberg advised that 

the idea is to have a comprehensive planning process that 

applies to the holding company, affiliates, and the insured 

depository; that the Title I plans apply to the nonbank 

operationsthe holding company and the affiliateswhich are not 

depository institutions subject to the FDI Act resolution 

authorities but are subject to being placed into the resolution 

process under Title II; and that, as a complement to the Title I 

living wills, if there is an insured entity within the holding 

company structure, the FDIC is requiring a resolution plan for 

the insured institution that would be folded into the larger 

plan. Mr. Cohen commented on the potential for creating a 

"Catch-22" situation, because a systemically important financial 

institution’s living will is supposed to plan for bankruptcyand 

it can be penalized if the plan is not crediblebut the very 

largest institutions will really be going through the resolution 

process because bankruptcy is not credible. In response, Mr. 

Krimminger advised that companies’ plans may not be credible, in 

part, because of the complexity and interconnections of the 

companies themselves, which requires the companies to determine 

how they could become less complex and interconnected to comply 

with that standard, presenting them with some very difficult 

choices. Mr. Fisher noted that there is nothing in the statute 

relevant to living wills that precludes the FDIC and the Federal 

Reserve from exercising their judgment on the complexity of the 

legal structure in determining that a living will is not credible, 

suggesting that the standard on what constitutes an acceptable 

level of complexity is being changed from what may have been an 

acceptable complexity, for example, in 2006. Mr. Volcker 

commented that, for example, by either accepting or rejecting a 

company’s living will, it appears the FDIC and the Federal Reserve 

could be forcing a company that is operating two business lines in 

the same legal entity to separate them to simplify the company’s 

business lines, in response to which Mr. Krimminger advised that 

that is part of the statutory process for the living wills, which 

specifically provides for the exercise of the Title I authority in 

several different stepsinitially, to determine whether or not it 

is a credible plan; then, if a company cannot submit a credible 

plan at a future date, to impose requirements to increase capital 

or liquidity; and, ultimately, if it cannot develop a credible 

January 25, 2012 
39 

plan, to force the company to take specific actions or wind up 

certain operations. Mr. Herring asked if the living wills will 

have an enhanced level of disclosure regarding an institution’s 

corporate structure, in response to which Mr. Wigand advised that 

there will be a public component of the plan that is likely to 

have some additional level of transparency regarding the 

institution’s structural component, and a component with 

confidential supervisory information that will only be shared with 

the regulators. Noting that some large institutions can have, for 

example, more than two thousand operating subsidiaries, 

Mr. Herring asked how the living wills can be evaluated if there 

is a resolution plan for each of those subsidiaries. Mr. Wall 

responded by advising that there is a materiality screening in the 

living wills requirements; that a single-asset subsidiary of low 

value is not going to be included in the plan; and that the 

Federal Reserve, as the supervisory authority over the 

institutions, will coordinate with the FDIC in determining which 

subsidiaries are material to the plan. Elaborating on this point, 

Mr. Simonson reiterated that the filing dates for the resolution 

plans are staggered to help avoid this issue. 

Noting that the first group of resolution plans are due on 

July 1, 2012, and that the Committee can revisit this subject at 

its next meeting after those first plans have been filed, Acting 

Chairman Gruenberg introduced M.P. Azevedo, Deputy Director, 

International Outreach and Coordination, OCFI, to lead off the 

meeting’s final panel discussion on the FDIC’s role in the 

coordination of an effective international resolution strategy. 

Ms. Azevedo began by noting that, with respect to the 

coordination of an international resolution, the FDIC’s mission 

is to promote public confidence and maintain financial stability 

during periods of financial stress and crisis by effectively 

coordinating the cross-border resolution of global systemically 

important financial institutions with its fellow regulators; to 

support the execution of an orderly resolution strategy by 

seeking cooperation of key host country supervisors; to mitigate 

systemic shocks by limiting precipitous and perhaps unnecessary 

interventions; and to preserve global franchise value by 

sustaining as many critical viable operations and core functions 

as possible. She emphasized that the key to an effective 

international resolution strategy is to keep it as simple as 

possible by identifying the key jurisdiction where important 

functions and critical operations of systemically important 

financial institutions are located in advance; identifying the 

legal nature of the entities in those jurisdictions, as well as 

the types of licenses and authorizations they hold; engaging in 

January 25, 2012 
IN 

purposeful dialogue in advance with applicable local regulators 

to identify obstacles to orderly resolution and address them 

potentially through bilateral cooperation and rule changes; and 

concluding memoranda of understanding with affected 

jurisdictions covering information sharing and cooperation, both 

in advance of, and during, a crisis. 

Emphasizing the importance of focusing on the global 

footprint of a systemically important financial institution to 

identify the jurisdictions that contain its critical activities 

and operations that would have systemic consequences, Ms. 

Azevedo then presented the findings of a heat-mapping exercise 

conducted by the FDIC staff, which identified the jurisdictions 

in the global footprint of five of the top systemically 

important financial institutions, as well as the particular 

legal entities that were material in those jurisdictions. She 

reported that the FDIC’s findings indicate that 13 jurisdictions 

cover 97 percent of the on- and off-balance sheet assets of the 

top five systemically important financial institutions that were 

examined; that over 90 percent of the total reported foreign 

activity for each of these five entities is located in one to 

three foreign jurisdictions; that over 80 percent of the total 

reported foreign activity for each of these entities comes from 

legal entities operating in the United Kingdom; and that over 85 

percent of each of the five entities total reported foreign 

activity comes from two to four legal entities. She noted that 

the results of the FDIC’s heat-mapping exercise suggest that, 

while a systemically important financial institution may have 

thousands of subsidiaries and a large global footprint, an 

international resolution strategy would actually be dealing with 

a fairly manageable list of key foreign jurisdictions to 

prioritize and a small number of legal entities that are very 

powerful drivers in the operations of the institution’s global 

footprint. 

Ms. Azevedo next discussed some of the legal obstacles to a 

successful single-entry strategy resolution, including 

change-of-control requirements; ring-fencing and liquidation 

triggers; lack of a broad-based stay of closing out or netting 

of derivatives and other qualified financial contracts; 

potentially divergent insolvency and legal frameworks; and 

diverse regulatory frameworks. Emphasizing that the 

coordination among foreign regulators rests largely on their 

ability to share information, she advised that the FDIC has 

resolution-oriented memoranda of understanding in place with the 

Bank of England, the United Kingdom Financial Services 

Authority, and the China Banking Regulatory Commission to 

January 25, 2012 
41 

facilitate the exchange of information in resolution planning, 

and is in the process of pursuing memoranda of understanding 

with the other significant jurisdictions identified in the 

FDIC’s heat-mapping exercise. She also briefly described a 

number of initiatives the FDIC is considering for 2012 to 

support an international resolution strategy, such as the 

heat-mapping of the memberships of systemically important 

financial institutions in the financial market utilities, 

identifying the particular financial market utilities critical 

to each systemically important financial institution’s 

subsidiaries and operations, evaluating how the appointment of 

the receiver at the top parent level could affect a systemically 

important financial institution’s membership with critical 

financial market utilities, identifying each systemically 

important financial institution’s key data centers and profit 

centers, and conducting tabletop international resolution 

simulations with key foreign regulators. Concluding her 

presentation, Ms. Azevedo suggested that the keys to a 

successful cross-border orderly resolution of a globally-active 

systemically important financial institution include active 

advance planning, both with the systemically important financial 

institution and, independently, with the other foreign 

regulators; a good understanding of the systemically important 

financial institution’s global footprint; and jurisdictions with 

harmonized resolution tools. 

Mr. Wall then discussed the FDIC’s active involvement in 

multilateral approaches to resolution planning, noting that 

these efforts started in large part with the establishment by 

the Basel Committee of its Cross-Border Bank Resolution Group 

("CBRG") in 2007. He advised that the mandate of the CBRGwhich 

Mr. Krimminger has co-chaired since its inceptionwas to analyze 

existing resolution policies, allocation of responsibilities, 

and legal frameworks of relevant countries as a foundation to a 

better understanding of the potential impediments and for 

identification of areas for possible improvement in cooperation 

with respect to the resolution of cross-border banks; that the 

CBRG issued a report in 2008, which included ten recommendations 

addressing the challenges in a cross-border resolution that 

focused on three areas: strengthening resolution powers and 

their cross-border implementation, the need for firm-specific 

contingency planning, and the need to reduce contagion risk 

through mechanisms like netting arrangements, collateralization 

practices, and regulated central counterparties; and that the 

CBRG conducted a survey in 2010 to identify steps that 

jurisdictions had taken to implement the recommendations of the 

2007 report, which concluded that progress had been made in many 

January 25, 2012 
42 

jurisdictions, but that further work was needed because many 

jurisdictions still lacked the legal authority to effect the 

resolutions as recommended in the report. Mr. Wall indicated 

that the work in this area has been carried forward, primarily 

through the auspices of the Financial Stability Board ("FSB"), 

which has created a number of work streams that address issues 

inherent in cross-border resolutions; that the FSB issued a 

report in Fall 2011 that identifies key attributes in 12 general 

areas that FSB considers appropriate attributes for an effective 

resolution regime; that these key attributes provide a target 

for harmonization of resolution regimes across jurisdictions; 

and that, at the FSB’s request, home countries have created 

"crisis management groups" through which the home country of 

each systemically important financial institution will bring 

together the relevant regulatory authorities in various 

jurisdictions to assess the resolvability of each systemically 

important financial institution and take steps toward developing 

a resolution plan. 

During the presentation on the FDIC’s efforts in the 

coordination of an international resolution strategy, Committee 

members made a numbers of comments and suggestions on the FDIC’s 

strategy for supporting a global process, MOUs with foreign 

regulators, and the role of the FDIC in cross-border 

initiatives. Noting that the most credible argument against the 

viability of Title II is the inability to deal with the 

international element, Mr. Cohen stated that the findings from 

the FDIC’s heat-mapping exercise illustrate that foreign 

activities are focused on a limited number of countries that are 

key jurisdictions, suggesting that international cooperation is 

far more closely within reach than, in his opinion, has been 

recognized. In response to Mr. Volcker’s observation that, 

except for the United Kingdom and Germany, the FDIC’s findings 

do not show any other European countries as a key jurisdiction 

for foreign activity, Ms. Azevedo explained that the impact of 

the passporting rights in the European Union has had a very 

powerful impact on the number of local licenses required by the 

systemically important financial institutions to operate in the 

European Union, which may reflect a harmonious environment that 

the United Kingdom has created to attract a number of those 

institutions. Mr. Herring asked if MOU5 are really useful in a 

crisis, since regulators have a tendency to withhold bad news as 

long as possible because they lose their discretion on how to 

deal with it once it is disclosed. In response, Mr. Krimminger 

stated that an MOU is a foundation that provides a basis for 

regulators to share information and be engaged with each other, 

and, more importantly, an MOU provides an understanding between 

January 25, 2012 
regulators, on a truly institution-specific basis, as to the value 

of working together with regard to an institution. 

In bringing the meeting to a close, Acting Chairman 

Gruenberg, agreeing with Mr. Volcker’s comment that the market 

does not recognize the amount of work that the FDIC has done on 

the resolution process, stated that today’s meeting has offered 

the first public presentation of the product of the FDIC’s work 

that has been done in the past 18 months since the enactment of 

the Dodd-Frank Act with regard to Title II planning work, 

development of the requirements for the Title I plans, and the 

FDIC’s international engagement on resolution issues. He 

advised that one of the FDIC’s priorities going forward is the 

external communication of the work we have done, because it is 

an approach that is viable and credibleand one that has had the 

engagement and involvement of all of the regulatory agenciesand 

that today’s meeting is the start of that communication process. 

Acting Chairman Gruenberg noted that, in the area of 

international relationships between regulators, there really has 

been a sea change since 2008 in terms of international 

recognition of the importance of these cross-border 

relationships and the need for cooperation, which is reflected 

in efforts of the Basel Committee and FSB working groups. He 

concluded by stating that the FDIC’s bilateral engagements that 

it has had to date have been, in his opinion, exceptionally 

productive, particularly the relationship that the FDIC has 

developed with the United Kingdom, which, as discussed in 

today’s meeting, is obviously the most significant foreign 

jurisdiction; and that the United Kingdom and the U.S. are the 

most advanced in terms of the statutory authorities that have 

been put in place to carry out the resolution of systemic 

companies and have a close collaborative relationship that will 

be very important for dealing with cross-border issues. 

There being no further business, the meeting was adjourned. 

Robert E. Feldman 

Executive Secretary 

Federal Deposit Insurance Corporation 

and Committee Management Officer 

FDIC Systemic Resolution Advisory 

Committee 

January 25, 2012 
Minutes 

of 

The Meeting of the Systemic Resolution Advisory Committee 

of the 

Federal Deposit Insurance Corporation 

Held in the Board Room 

Federal Deposit Insurance Corporation Building 

Washington, D.C. 

Open to Public Observation 

January 25, 2012 - 8:45 A.M. 

I hereby certify that, to the best of my knowledge, the attached 

minutes are accurate and complete. 

Martin J. GruIJberg 

Acting Chairman 

Board of Directors 

Federal Deposit Insurance Corporation