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 

December 10, 2012 - 8:53 A.M. 

The meeting of the FDIC Systemic Resolution Advisory 

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

Gruenberg, Chairman of the Board of Directors, Federal Deposit 

Insurance Corporation ("Corporation" or "FDIC") 

The members of the Committee present at the meeting were: 

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

University, Stanford, California; Charles A. Bowsher, Chairman 

and Member of the Research Advisory Council of Glass, Lewis & 

Company, LLC, Bethesda, Maryland; Michael Bradfield, 

Mercersburg, Pennsylvania; William H. Donaldson, Chairman, 

Donaldson Enterprises, New York, New York; 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.; Douglas Peterson, President, Standard and 

Poor’s, New York, New York; Paul A. Volcker, Chairman, Trustees 

of the Group of 30, New York, New York; and David J. Wright, 

Secretary-General, International Organization of Securities 

Commissioners (IOSCO), Madrid, Spain. 

Members Michael Bodson, Chief Operating Officer, The 

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

York; H. Rodgin Cohen, Senior Chairman, Sullivan & Cromwell LLP, 

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

44 

December 10, 2012 
45 

BlackRock Investment Institute, New York, New York; Janine 

Guillot, Chief Operating Investment Officer, Ca1PERS, 

Sacramento, California; John S. Reed, Chairman, Corporation of 

MIT, New York, New York; and 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 were absent from the meeting. 

Members of the Corporation’s Board of Directors present at 

the meeting were: Martin J. Gruenberg, Chairman; Thomas N. 

Hoenig, Vice Chairman; and Jeremiah 0. Norton, Director 

(Appointive) 

Corporation staff who attended the meeting included: Steven 

0. App, M.P. Azevedo, Christine E. Blair, Annmarie H. Boyd, 

Jason C. Cave, Kymberly K. Copa, Carolyn D. Curran, Christine N. 

Davis, Patricia B. Devoti, Bret D. Edwards, Diane Ellis, Pamela 

J. Farwig, Robert E. Feldman, Ralph E. Frable, George French, 

Alice C. Goodman, Andrew Gray, Shannon N. Greco, Marianne 

Hatheway, Michele A. Heller, David S. Hoelscher, James J. Hone, 

Alan W. Levy, Christopher Lucas, Roberta K. McInerney, Arthur J. 

Murton, Richard Osterman, Bimal V. Patel, Stephen A. Quick, Jack 

Reidhill, Barbara A. Ryan, John F. Simonson, Eric J. Spitler, 

Marc Steckel, David Wall, Cottrell L. Webster, John D. Weier, 

and James R. Wigand. 

Garry Reeder, Chief of Staff, Office of the Director, 

Consumer Financial Protection Bureau, and William A. Rowe, III, 

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

the Comptroller of the Currency, were also present at the 

meeting. 

Chairman Gruenberg opened and presided at the meeting. He 

began by welcoming the Committee members and advising that, 

since the Committee’s last meeting, the FDIC has focused on 

three core issues relating to the resolution of systemically 

important financial institutions ("SIFIs") : (1) the development 

of internal resolution plans to implement the FDIC’s authorities 

under Title II of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act ("Dodd-Frank Act") ("Title II") for the resolution 

of systemically important financial institutions; (2) the 

process of reviewing the first round of resolution plans or socalled "living wills" that bank holding companies with 

consolidated assets greater than $50 billion are required to 

prepare under Title I of the Dodd-Frank Act ("Title I")a joint 

responsibility that the FDIC shares with the Board of Governors 

of the Federal Reserve System ("Federal Reserve"); and (3) the 

December 10, 2012 
46 

engagement of the FDIC’s foreign counterpartson both a 

bilateral and multilateral basison systemic resolution. 

Chairman Gruenberg then provided an overview of the meeting 

agenda, advising that the two afternoon sessions would focus on 

the Title II resolution plans and the Title I review process for 

the resolution plans that the companies themselves have been 

preparing; and that Paul Tucker, Deputy Governor for Financial 

Stability, Bank of England, would lead the morning session which 

would be devoted to a discussion of the FDIC’s cross-border 

international work. He noted that Mr. Tucker, in his capacity 

as Deputy Governor for Financial Stability, oversees the Bank of 

England’s responsibilities for the resolution of SIFI5 and has 

been the point person for the United States’ ("U.S.") engagement 

and collaboration with the United Kingdom ("U.K.") regarding 

resolution planning for SIFIs, which has resulted in the release 

today of a joint paper by the Bank of England and the FDIC on 

resolving globally active systemically important financial 

institutions ("G-SIFI5") . He also noted that Mr. Tucker serves 

as a member of the steering committee of the G20 Financial 

Stability Board ("FSB") and, in that capacity, serves as 

Chairman of its Resolution Steering Group; that he oversaw the 

development of the FSB’s Key Attributes of Effective Resolution 

Regimes for Financial Institutions ("Key Attributes")the first 

international standards for the resolution of financial 

institutions; and that he has also been deeply involved in the 

European Commission’s pending directive on recovery and 

resolution planning. Chairman Gruenberg concluded his remarks 

by noting that the Bank of England and the FDIC have developed a 

very good partnership, based in part on mutual interest because 

the U.S. and the U.K. are the respective hosts of the largest 

foreign operations of the U.S. SIFIs, and advising that Mr. 

Tucker would discuss the joint work of the FDIC and the Bank of 

England and the broader international efforts relating to 

systemic resolution. After introducing James R. Wigand, 

Director, Office of Complex Financial Institutions ("OCFI"), who 

briefly covered a few administrative matters on the conduct of 

the meeting, Chairman Gruenberg turned the discussion over to 

Mr. Tucker. 

Mr. Tucker expressed his gratitude for being invited to 

address the Committee, noting that Committee member Donald Kohn 

is a colleague and that he has also worked with Committee member 

David Wright, who, as a member of the FSB Resolution Steering 

Group for many years, has made significant contributions to 

addressing resolution issues in Europe. He stated that, from an 

FSB perspective, the approach to the too-big-to-fail problem 

December 10, 2012 
47 

adopted by the FSB has been described as a "bookends" strategy 

because, at one end of the spectrum, there are more capital and 

liquidity to make it less likely that these SIFIs will fail and, 

at the other end of the spectrum, there are resolution regimes 

to ensure that they get through failure in an orderly way 

without taxpayer support. He noted that the adoption of this 

approach by the FSB is especially significant for the U.K., 

which serves as both a significant home jurisdiction and a very 

significant host jurisdiction; that almost every significant 

bank or broker-dealer in the world has very large operations in 

London; that a number of very significant institutions are 

domiciled in the U.K.; and that, for many years, the U.K. has 

not had a resolution regime that can cope with failure on a 

cross-border basis. 

Mr. Tucker then provided background information on the 

U.K.’s legislative framework, explaining that, as it entered 

this crisis, the U.K. did not have a legislative framework for 

resolutions other than standard bankruptcy procedures, which do 

not work well for depository institutions; that, in 2009, the 

U.K. Parliament introduced a resolution regime modeled almost 

word for word on the FDIC’s legislation for resolving depository 

institutions; and that the U.K. Parliament is currently 

processing a bill that will extend that resolution regime to 

bank holding companies and broker-dealers and, prospectively, to 

central counterparties. For various other strengthening of the 

its system, he continued, the U.K. will rely on the European 

Union Recovery and Resolution Directive ("E.U. Directive") 

scheduled for implementation next year, which will establish a 

common resolution regime for all of the 27 European Union member 

states and ensure a common language for European resolutions; 

and that the implementation of the E.U. Directive is separate 

from progress on the European continent toward a banking union 

within the monetary union, which, in the future could facilitate 

the establishment of a common resolution authority across the 

European Union. He noted that the U.K does not plan to be part 

of the banking union and is primarily concerned with the E.U. 

Directive; and that the directive, among other things, will 

extend the tools available to resolution agencies in Europe to 

include writing down debt liabilities by converting a part of 

such liabilities into equitywidely known as "bail-in"and will 

remove some impediments embedded in European law that affect the 

resolution of a large and complex firm, such as the ability to 

impose stays on derivatives or netting of contracts. 

December 10, 2012 
M. 

Mr. Tucker continued, stating that there are two very 

different problems in resolving the largest and most complex 

firms: (1) determining where the losses gowhich after equity 

holders should go to the debt holders or, in the case of insured 

deposits, to the deposit insurance firm which can then collect 

any losses from the industry, and (2) determining how to apply 

this on a cross-border basiswhich presents a special challenge 

on a global basis for a large and complex firm because of the 

cross-border elements and the value destruction entailed by 

putting so much into liquidation. He noted that the Key 

Attributes, the Dodd-Frank Act in the U.S., and, prospectively, 

the E.U. Directive in Europe, give resolution authorities the 

ability to take a different approach by writing down the 

liabilities of a large bank or broker-dealer at the holding 

company or operating company level. He advised that the FSB 

recently issued draft guidance on resolution strategies and made 

a distinction between two types of strategies: (1) single point 

of entry, which involves a single resolution authority resolving 

the entire financial group from the top of the group, and (2) 

multiple points of entry, which involves authorities around the 

globe each resolving their part of the group in a coordinated 

manner. He also advised that the joint paper issued today by 

the FDIC and the Bank of England focuses on applying bail-in by 

a single point of entry resolution strategy from the top of the 

group; and that the importance of this cross-border cooperation 

is that the home and host authorities can each understand what 

steps the home authority would take and decide whether or not to 

rely on the home resolution authority. 

To illustrate the single entry strategy, Mr. Tucker 

outlined a scenarioapplicable to all of the significant U.S. 

SIFIs and most of the European SIFI5in which a financial group 

with a holding company issues equity and bonded debt to finance 

its operating banking subsidiaries in the U.K. and elsewhere 

globally, and one of those operating companies encounters severe 

financial difficulty that results in its failure. In this 

example, he continued, the single point of entry resolution 

strategy would involve pushing those losses up to the holding 

company, having the resolution authority take control of the 

holding company and write off the equity and a sufficient amount 

of the outstanding debt issued by the holding company to cover 

the losses, and then converting part of the residue of 

outstanding debt of the holding company into equity to 

recapitalize the financial group by following broadly the order 

of priority of creditors that would be followed in a 

liquidation. He advised that the debt holders or a layer of 

debt holders in this strategy would become the owners of the 

December 10, 2012 
49 

financial group, and the distressed subsidiary would be 

recapitalized by pushing the losses out to the holding company 

level; that this could be accomplished through the use of a 

bridge holding company in the U.S. or the U.K., as well as 

through a trust structure in the U.K.; that both the U.S. and 

the U.K. versions of this strategy would involve an upfront 

valuation of the financial groupan ex ante assessment of the 

losses; and that this would involve a significantly different 

process than the FDIC’s typical purchase and assumption 

transaction for failed insured depository institutions through 

which the insured deposits, cash, and certain of the good assets 

are sold to another insured depository institution and the 

valuationor the scale of the lossesemerges only ex post 

through the liquidation of the remaining assets. 

Mr. Tucker next expressed his views on the valuation 

process, noting that the single point of entry strategy would 

not work for a distressed bank or broker-dealer if the 

institution is so completely toxic or the records of its assets 

and liabilities so incomplete that a reliable valuation of the 

assets could not be made in advance to determine the amount of 

the expected losses; that the Bank of England and the FDIC 

continue to debate how quickly a valuation of the amount of the 

expected losses could be made in the run-up to a crisis; and 

that supervisors and resolution authorities would likely need to 

establish requirements for firms to maintain detailed books and 

records of their assets. He advised that an important aspect of 

the strategy described in the joint paper is that, except for 

the distressed subsidiary, the subsidiaries keep operating in 

the domestic jurisdiction of the country where the financial 

group is headquartered, as well as all the other countries 

throughout the world; that only in the country of the distressed 

subsidiary that has caused the difficulties are the losses 

pushed up to the holding company and the subsidiary 

recapitalized; that, with respect to the continuous operation of 

the subsidiaries, there would need to be a dialogue with all of 

the relevant host authorities to effect this strategy on a 

global scale; and that he believes the U.K. authorities are 

prepared, in principle, to stand back and allow the U.S. 

authorities execute a resolution of the massive U.S. financial 

groups with extensive operations in the U.K. without 

interference with respect to the subsidiaries and branches or 

the assets of the businesses domiciled in the U.K. He 

emphasized that, through this resolution strategy, no one is 

being let off the hookthe equity holders would lose all value; 

the subordinated and unsecured debt holders, if necessary, would 

lose all value; culpable senior management would be removed; and 

December 10, 2012 
50 

the unprofitable businesses would be discontinued. He also 

advised that the whole group could be restructured, either 

within the resolution or subsequently; and that this resolution 

would not be a disguised form of bailout or an easy option for 

the firms, and would not be subsidized by the taxpayers or 

result in the taxpayers bearing the losses. 

Mr. Tucker concluded by stating that, as a result of the 

global efforts over the past three years, there is a globallyshared conception of the structure for a resolution regime, 

which the FSB will ensure by reporting to the G20 leaders that a 

resolution regime is being established in all of the G20 

countries, as well as Hong Kong and Singapore; that this 

resolution regime is already established in the U.S. through the 

Dodd-Frank Act and, prospectively, will be established in 

Europe, as well as Asia and other parts of the world; that, as 

the next step, there is a global effort with the FSB to 

articulate the resolution strategies that could be followed in 

the application of that global resolution regime; and that, as 

evidenced by the joint paper released today, the U.K. 

authorities and the U.S. authorities, especially the FDIC, have 

done some detailed planning with respect to implementing those 

strategies. 

At the conclusion of Mr. Tucker’s remarks, Chairman 

Gruenberg opened the floor for questions or comments from the 

Committee members. Mr. Kohn began the discussion by emphasizing 

that it may be extremely difficult to complete an upfront 

valuation, particularly in a crisis situation such as the one 

encountered in the Lehman Brothers case. He asked if the 

resolution strategy would leave enough in the holding company to 

continue absorbing any unexpected losses or to keep other 

subsidiaries well capitalized. In response, Mr. Tucker noted 

that there are two approaches to the valuation: (1) make a 

conservative estimate of the losses that errs on the high side 

of the valuation and provides the relevant layer of debt with 

some rorm or a ciaw cacic tnrougn warrants or simi–ar 

instruments, or (2) make a less conservative estimate of the 

losses that errs on the low side of the valuation but leaves 

enough equity in the holding company to cover further unexpected 

losses; and that both approaches achieve the objective of 

writing down the debt and converting part of the residue of the 

debt into equity. Ms. Admati then asked whether the trigger for 

a resolution would be default or insolvency, which depends on 

the valuation. Mr. Tucker responded by noting that there are 

criteria for being authorized as a financial institution in the 

U.K., and the trigger for a resolution is that the supervisory 

December 10, 2012 
51 

agency concludes that the criteria for authorization are not met 

and that there is no reasonable prospect of meeting the criteria 

in the future in the absence of a resolution. He cautioned that 

this does not mean the financial institution’s balance sheet is 

bankrupt on the day it is put into a resolution, but that it 

would be bankrupt in the future if events were left to follow 

their normal course, which could be partly through a liquidity 

crisis; and that serves as the trigger for the resolution of any 

authorized financial institution within the scope of our 

resolution regime. 

Mr. Johnson commended the FDIC and the Bank of England for 

their work on this very difficult problem, noting that it 

represents some steps in the right direction. He then asked if 

there must be a minimum amount of debt at the holding company 

level relative to the exposures in the operating companies for 

the bail-in strategy to work. In response, Mr. Tucker noted 

that this resolution approach could be done at the operating 

subsidiary level as well as the holding company level; that, 

when these resolution regimes are in place everywhere, the 

regulatory authorities would have to determine whether to 

prescribe a minimum amount of debt issued from the holding 

company or the operating companies; and that the E.U. Directive 

and the legislation going through the U.K. Parliament each have 

provisions concerning this issue. Chairman Gruenberg emphasized 

that this is an issue that has been given considerable attention 

because it is the central issue relating to this resolution 

strategy built around debt at the holding company level; that, 

in the U.S. context, the current structure of large institutions 

is one that has a large amount of debt at the holding company 

level, which makes the strategy imaginable and creates 

incentives for these companies to shift their structure; and 

that this issue has been discussed extensively with the Federal 

Reserve, which has broad authority to establish capital 

requirements at the holding company level. Mr. Wigand noted 

that there must be an adequate amount of bonds and other types 

of unsecured credits that could be converted into equity to 

absorb losses of the operating companies below the holding 

company level in order for this strategy to work; that 

alternative resolution frameworks with multiple points of entry 

using the legal entities below the holding company level, such 

as the depository institution and the broker-dealer, would need 

to be considered if there is an insufficient amount of debt at 

the holding company level; and that the single point of entry 

strategy is more appealing from an economic standpoint because 

the companies typically operate as single enterprisesrather 

than multiple enterprisesand, therefore, the creditors of the 

December 10, 2012 
52 

single holding company at the top are the ones that should bear 

the cost of the support to keep it as an integrated whole 

because they have benefitted from the operations of the company 

as an integrated whole. 

Mr. Volcker questioned whether the U.S. would be willing to 

stand back if it is the U.K.’s or another country’s home 

institution being resolved; he also noted that this approach is, 

de facto, insuring the deposits of large institutions. In 

response, Mr. Tucker indicated that, historically, the question 

concerning the level of cooperation between home countries and 

host countries around the world has not been addressed until the 

heat of the crisis; and that it is important to bring that 

conversation forward and address that question in advance of, 

rather than during, a crisis, when there may be insufficient 

international cooperation. On the issue of deposits being 

insured, Mr. Tucker also noted that deposits would remain 

insured up to the deposit insurance limit, but with the deposit 

insurer taking losses; that it would be possible to bail-in the 

deposit insurer within Europe and the U.K. to avoid the deposit 

insurer only losing money at the end of a process of 

realization; and that, if the U.K. authorities could not bail-in 

from the holding company level, then ring-fencing of the 

domestic deposit-taking institution could be considered a 

fallback strategy as part of a multiple points of entry 

resolution strategy, with the U.K. resolving at the level of the 

ring-fenced deposit taker. Following up on the issue of the 

U.K. or another country taking the lead in a troubled situation, 

Mr. Bradfield noted that, if the U.S. would not stand back, the 

alternative would be the multiple points of entry approach. He 

asked how that approach would work in practice and, if secured 

debt is not included in the bail-in assets and liabilities, 

whether the market would react by making all of its credits 

available to resolvable institutions with secured credit or 

repurchase agreements, thus leaving no debt that can be turned 

into equity using the bail-in approach. On the issue of 

encumbrance, Mr. Tucker responded by noting that having more 

encumbered assets results in less available for the deposit 

insurance agency to cover its losses, which creates an incentive 

for using the bail-in approach or another approach to push the 

losses away from the taxpayer onto the debt holders. He also 

noted that there is currently an active debate concerning the 

tracking and disclosure of encumbrance, as well as limitations 

on encumbrance, which must be done with a level of transparency 

that does not undermine the central banks that are themselves 

lenders against assets. On the issue of multiple points of 

entry, Mr. Tucker emphasized that one of the important elements 

December 10, 2012 
53 

of the FSB’s Key Attributes is that the home authority has to be 

responsible for ensuring that there is a coherent plan for the 

resolution of the group worldwidethey are the coordinator of a 

multiple points of entry resolution, even if it involves a 

number of different countries. Noting that many of the 

financial groups have thousands of legal entities providing 

services to one another, he stressed that, at a minimum, it is 

important that those services are documented in contracts that 

are enforceable if the legal entities are split up through a 

resolution, that those operating companies are in jurisdictions 

where the rule of law is good, and that there are contracts with 

all the relevant entities that would survive a multiple points 

of entry resolution. 

Mr. Peterson questioned the ability to apply international 

accounting standards in a way that ensures consistency on legal 

vehicle structuresas well as loan equivalent valuations and 

mark-to-market accountingand addresses very large distortions 

that can exist across borders. He also raised the issue of socalled "shadow banking" and asked what would be done to deal 

with unregulated financial institutions that are taking 

increasingly larger positions within the financial markets. 

With respect to the accounting standards issue, Mr. Tucker 

indicated that the international authorities must keep pressing 

the international and U.S. accounting standards authorities to 

converge on good accounting standards; that, if necessary, the 

financial regulatory authorities must put their own standards in 

place; and that, rather than capital being set aside for 

unexpected losses, regulators could consider requiring that 

capital be set aside against expected losses that are not 

covered by loss provisionssimilar to the expected loss 

provisioning employed by bank supervisors around the world in 

the context of the Latin American and Eastern European debt 

crisis in the early 1980s. On the issue of shadow banking, Mr. 

Tucker expressed agreement, noting that resolution powerssuch 

as those established by Title TIshould extend to nonbank 

financial institutions, and that those resolution powers were 

not included in the E.U. Directive but are planned for a 

parallel directive which would apply resolution powers to 

nonbank financial institutions. Commenting that progress has 

been made on the single point of entry strategy with the 

cooperation of the U.K., Mr. Herring raised concerns that the 

mechanism of forcing losses up to the holding company level has 

the appearance of looking to the holding company as a source of 

strength, and that the multiple points of entry strategy as a 

backup position leads to uncertainty that could cause creditors

especially in wholesale marketsto run very quickly at the first 

December 10, 2012 
54 

hint that the operating subsidiary that they deal with could be 

one of those in which losses will be crammed down. In response, 

Mr. Tucker indicated that the point of forcing losses up to the 

holding company is an important one that can be addressed by 

having the holding company guarantee its subsidiaries or face 

higher haircuts on collateral that is pledged to the central 

banks, or by imposing unlimited liability; that it is also 

important that the supervisors and resolution authorities have 

the power to require organizational or financial restructuring 

of financial groups to ensure that they are resolvable; and that 

there are risks with the multiple points of entry strategy that 

creditorsparticularly short-term creditorsare going to 

retreat, but, if the resolution plan is credible, the creditors 

should be better off than they would be in a liquidation and the 

central banks should be prepared to lend to companies that are 

solvent and viable on a short-term basis to bridge liquidity 

difficulties. Mr. Volcker then asked if, in a resolution, the 

remaining financial company would be broken up or sold off in 

parts. In response, Mr. Tucker advised that, from the U.K.’s 

perspective, it could be broken up in some circumstances but 

that good parts of the business may continue provided the 

shareholders have been wiped out, debt holders have taken losses 

and become exposed to risk as new equity holders, and management 

has been replaced. 

After thanking Mr. Tucker for his presentation and the 

insights that he provided to the Committee, Mr. Wigand announced 

that the meeting would briefly recess. Accordingly, at 10:36 

a.m., the meeting stood in recess. 

* * * * * * * 

The meeting reconvened at 11:02 a.m. the same day, at which 

time Chairman Gruenberg thanked Mr. Tucker for an interesting 

discussion with the Committee members. After inviting Mr. 

Tucker to join the Committee for the remainder of its meeting, 

Chairman Gruenberg turned the discussion over to Mr. Wigand, who 

introduced M.P. Azevedo, Deputy Director, International Outreach 

and Coordination, OCFI, and David N. Wall, Assistant General 

Counsel, Complex Financial Institutions Section, Legal Division, 

to continue the meeting with a discussion of the work of the 

FDIC’s international coordination group. 

Ms. Azevedo began by advising that she would provide an 

overview of the FDIC’s efforts to operationalize global 

resolution strategies, focusing on three key areas: (1) an 

update of the heat mapping exercise findings on key 

December 10, 2012 
55 

jurisdictions since the Committee’s last meeting and new 

criteria that were used beyond that of "total activity"defined 

as foreign activity comprised of on-balance sheet assets and 

off-balance sheet assets of SIFIs outside of the United States; 

(2) a description of the outreach efforts based on key 

jurisdictional findings; and (3) the identification of key 

obstacles to cross-border resolution. She advised that the FDIC 

has developed a work program to operationalize its preferred 

global resolution strategythe single point of entry strategyby 

first understanding each U.S. SIFI’s global footprint to enable 

the FDIC to mitigate the systemic impact of a failure by 

sustaining critical operations and core functions at viable 

foreign entities, to identify key jurisdictions involved in a 

particular SIFI’s strategy from the heat mapping exercises and 

work together with supervisors and resolution authorities in 

those jurisdictions, and to identify obstacles to cross-border 

resolution. 

Ms. Azevedo next provided an update of the FDIC’s heat 

mapping exercise, noting that the number of top U.S. SIFIs used 

in the heat mapping has been increased to seven institutions; 

that the key findings remain unchanged, with more than 90 

percent of the total foreign activity for the top seven U.S. 

SIFIs located in three jurisdictions and the U.K. still having 

the largest footprint; that 15 jurisdictions cover more than 97 

percent of the total reported foreign activity of the top seven 

U.S. SIFTs; and that one to seven legal entities account for 

more than 85 percent of each SIFI’s total reported foreign 

activity. A new criterion used in the heat mapping, she 

continued, was liquidity surpluses for the organization, with 

the findings indicating that liquidity surpluses are also 

concentrated in a handful of jurisdictions, primarily the U.K. 

and a few other jurisdictions such as Japan, Ireland, and 

Switzerland. She explained that the mapping of clusters of 

intercompany funding sources and funding interdependencies 

suggests which entities might be integral to funding the 

enterprise, both in terms of operating in a business as usual 

mode in normal times and continuing critical operations in a 

resolution mode or the execution of a successful Title II 

strategy; and that excess third-party assets covering thirdparty liabilities was also considered because it may heighten 

susceptibility to ring-fencing in those jurisdictions and at 

particular affiliates. She also reported that another criterion 

was data and operational centerswhich provide shared services, 

support critical operations, and underpin core business lines 

globally; that the available information showed that clusters of 

data and operation centers outside of the U.S. tend to be 

December 10, 2012 
56 

centered around European financial centers, notably the U.K., 

and Asia; and that the data and operation centers are often 

housed in unregulated legal entities, typically subsidiaries and 

not branches. Finally, she noted that the last criterion was 

key memberships in non-U.S. financial market utilities ("FMU5"), 

with the findings indicating that a handful of FMU memberships 

concentrated in a few key jurisdictions outside of the U.S. 

appear to be essential to continuing foreign operations. 

Ms. Azevedo then discussed the FDIC’s bilateral engagement, 

noting that FDIC’s efforts have placed particular emphasis on 

building trusting relationships with foreign resolution 

authorities by initiating bilateral dialogue to promote better 

understanding of resolution strategies and resolution regimes 

and to identify obstacles and issues that need to be addressed. 

She advised that the FDIC has participated in 23 FSB Crisis 

Management Group meetings in eight jurisdictions; that these are 

multilateral meetings with respect to particular SIFIs in both 

the U.S. and foreign jurisdictions that provide the opportunity 

for in-depth bilateral dialogue and presentations on the FDIC’s 

single point of entry strategy. Next, she advised that another 

initiative is to conclude bilateral memoranda of understanding 

("MOUs") with resolution authorities and financial regulators in 

key foreign jurisdictions; that the FDIC has been in active 

dialogues to conclude MOUs with 26 jurisdictions; that MOUs 

related to resolution-specific matters have been completed with 

the U.K, Ireland, Jersey, and China; and that discussions on 

MOUs are underway in six EMEA jurisdictions, as well as eight in 

Asia and five in the Americas, with seven more planned. She 

explained that the MOUs recognize the mutual importance of 

advance preparation for a resolution and attempt to establish a 

framework for consulting regularly on resolution developments, 

firm-specific resolution issues and strategies, and parameters 

for protecting the confidentiality of shared financial 

information. Finally, she advised that obstacles to crossborder resolutionparticularly those that present obstacles to 

the continuity of critical foreign operationshave been 

identified in a number of the key heat-mapped jurisdictions, 

including: ring-fencing; change of control requirements; fit and 

proper requirements for senior managers and board members in the 

new entity; termination of contracts in jurisdictions without 

24-hour stays, especially related to derivatives; and continuing 

access to securities, payments, derivatives, and foreign 

exchange clearing and settlement systems. She also noted that 

another key obstacle is access to collateral because it is 

critical to ensure that liquidity is available and continues to 

circulate within an enterprise in resolution; and that access to 

December 10, 2012 
57 

data and operational services also is a key obstacle that needs 

to be addressed to ensure that services provided by affiliates 

are governed by enforceable contracts. 

In closing, Ms. Azevedo commented on the keys to a 

successful cross-border resolution, noting that SIFI5 have 

extensive global footprints covering 100 or more jurisdictions 

with thousands of legal entities; that the workload needs to be 

managed by prioritizing; that it is necessary to plan ahead by 

promoting global understanding of resolution strategies, as well 

as discussing key obstacles and issues associated with those 

strategies; and that it is important to enhance the 

possibilities for cross-border cooperation by promoting the 

adoption of common toolkits for resolution and shared goals. 

During the discussion that followed, Committee members 

commented on a number of issues relating to a cross-border 

resolution. Mr. Donaldson asked what primary obstacles have 

been identified to a cross-border resolution. In response, Ms. 

Azevedo suggested that a primary obstacleone that presents an 

operational issueis to ensure that key foreign subsidiaries 

hosting critical operations have necessary funding in their 

respective time zones after the resolution strategy has been 

executed. Mr. Wigand indicated that, in a broader context, 

liquidity would be a key obstacle associated with resolution, 

particularly with regard to the issues that could arise from a 

misalignment among functions and operations, legal entities, and 

funding structures. He elaborated by explaining that 

misalignment presents a resolution challenge because operations 

and functions do not align with legal entities, which, in turn, 

do not necessarily align with funding structures; that, in the 

typical universal banking model, a company’s operations are 

based on functional or business linessuch as retail banking, 

investment banking, and asset managementwhich are conducted 

through multiple legal entities that generally number in the 

thousands for the largest SIFI5; and that funding to support 

those businesses is handled through a variety of mechanisms, 

with that liquidity, as well as risk, being transferred within 

the enterprise to basically satisfy the business needs of the 

company. He continued, noting that those entities fail based on 

their legal charters, and, as a result, the integration that 

existed prior to failure ceases to exist and the resolution 

authoritieswhether it is the FDIC through Title II, a 

bankruptcy court, or a foreign administrator through the 

respective insolvency regime for the subsidiary in that 

jurisdictionwould have to operate based on the authorities for 

that particular legal entity, which has the potential of 

December 10, 2012 
disrupting the provision of systemically important services and 

creating uncertainty that becomes the transmission mechanism for 

contagion and systemic risk. He emphasized that liquidity is 

likely to have evaporated in the run up to insolvency and 

immediately replacing that liquidity upon insolvency to maintain 

critical operations is a major obstacle. He also noted that 

ensuring that authorities in hosted jurisdictions understand how 

this process will unfold is a challenge, since it is critically 

important to avoid unintended actions being taken by other 

authorities that would frustrate the ability of the home 

authority to execute a resolution process. In addition, he 

advised that derivatives netting provisions present a key 

resolution challenge that the Dodd-Frank Act, as well as the FDI 

Act, each address with respect to domestic contracts, but that 

it remains problematic for those contracts that are booked 

overseas or written under a jurisdiction that does not have a 

similar preclusion of the ability to immediately unwind those 

contracts. 

Ms. Admati then asked what information sources were used 

for heat mapping foreign activity and what parameters were used 

to define the critical operations and core functions. In 

response to the first question regarding information sources, 

Ms. Azevedo advised that reliable sources of information for 

heat mapping the top U.S. SIFS5 are limited, but that the FDIC 

has been able to use confidential supervisory reports filed by 

the firms. Through the development of the living wills under 

Title I, Mr. Wigand added, there are resolution issues that 

would need to be addressed and that, hopefully, will serve as an 

avenue or mechanism to obtain better information and to address 

some of the issues concerning transparency. Turning to the 

definition of critical operations and core functions, he advised 

that, for purposes of developing the living wills and Title II 

resolution planning, critical operations are those operations 

whose path of succession will impact financial stability in some 

form; that core functions are those critical activities or 

operations that represent the core services provided by the firm 

and its market niche in the industry; that critical operations 

are of significant concern with respect to mitigating the 

effects of a failure and containing systemic risk, and core 

functions are important with respect to how the resolution 

authority deals with the issues of restructuring, how the firm 

exits resolution, and the value of that firm to both the 

stakeholders and the public at large. Noting that a number of 

countries may be moving toward increasing subsidiarization of 

functions in their particular countries, Mr. Kohn asked what 

effect this has had on the resolution process. In response, Mr. 

December 10, 2012 
59 

Wigand stated that the problem with subsidiarization is not the 

number of subsidiaries but how they relate to and interact with 

one another; that a better term would be "compartmentalization" 

because it describes how a set of activities within a firm are 

compartmentalized in a manner that allows the legal entities 

associated with those activities to fail without either bringing 

down the rest of the firm or the financial system; that the 

single point of entry strategy is not at all in opposition to 

that structuring since, by minimizing the number of 

insolvencies, there would be greater predictability of the 

outcome that potentially mitigates the key risks associated with 

the failure of the SIFI; and that a compartmentalized approach, 

in many respects, works hand-in-hand with or supports a single 

point of entry strategy because it identifies those activities 

which may be more independent and less in need of an integrated 

approach since the losses can be absorbed as an independent 

operation of the compartmentalized group and do not need to be 

pushed up to the holding company. 

Mr. Johnson expressed concern that managing a large SIFI 

failure in the middle of the week across different time zones 

would be incredibly complex, and suggested that G-SIFIs, 

domiciled in the U.S., ultimately may not be resolvable across 

multiple jurisdictions under this resolution authority without 

having massive adverse economic consequences. Ms. Azevedo 

responded by suggesting that, while a Tuesday failure is not as 

preferable as a Friday failure, some of the operational 

challenges can be overcome with advance planning and the 

cooperation of local authorities. Noting that the FDIC is 

considering the best mechanisms to address this difficult 

challenge, Mr. Wigand emphasized that the outreach component of 

the FDIC’s international coordination is extraordinarily 

important for engaging in dialogues with local authorities to 

build the level of understanding, confidence, and trust that 

would allow a resolution authorityor a coordinated effort of 

resolution authoritiesto actually implement resolutions in 

multiple entities within a failing enterprise. Mr. Tucker then 

asked if, in addition to the heat mapping of the most important 

jurisdictions outside of the U.S., the FDIC will look at a 

different set of jurisdictions such as those where a firm’s 

local presence might not be systemic in the U.S. but would have 

a systemic impact on the host country’s economy, particularly 

since these are the host countries with the greatest incentive 

to quickly grab control of the firm’s assets for fear of a 

domestic economic crisis. In response, Ms. Azevedo indicated 

that the FSB Crisis Management Groups are becoming aware of 

those jurisdictions and factoring them into the strategy; Mr. 

December 10, 2012 
ME 

Wall noted that the FDIC will likely participate in any FSB 

initiatives on those issues; and Mr. Wigand indicated that, in 

the context of the living will preparation exercise, the FDIC 

has considered whether there are services provided by the firm 

that may not be systemically important domestically but which 

would be very important to a jurisdiction that is dependent on 

that service. In reference to cross-border resolution 

obstacles, Mr. Wright suggested that clarity of ownership of the 

firm’s securities and assets, in addition to depositor 

preference, present potentially significant problems on a crossborder basis and should be addressed. Mr. Wigand responded by 

noting that one of the reasons the single point entry of 

strategy is viewed as the optimal mechanism for dealing with an 

insolvency is that the holding company has a very limited set of 

stakeholders and, therefore, it becomes easier to handle a 

claims process for a very narrow set of creditors than to 

dealing with literally the exponential number that would arise 

from multiple insolvency proceedings, particularly at key 

operating subsidiaries. On the issue of depositor preference, 

Chairman Gruenberg noted that, from the FDIC’s standpoint, it is 

an issue that involves the FDIC’s relationship with some of its 

foreign counterparts and a subject that is receiving substantial 

attention. 

Chairman Gruenberg then announced that the meeting would 

recess for lunch. Accordingly, the meeting stood in recess at 

12:17 p.m. 

* * * * * * * 

The meeting reconvened at 1:29 p.m. on that same day, at 

which time Mr. Wigand introduced John F. Simonson, Deputy 

Director, Systemic Resolution Planning and Implementation, OCFI, 

to present the next panel discussion on the Title II resolution 

authority, focusing on two specific issues: (1) the decisions 

and triggers for implementing Title II liquidation authority; 

and (2) the relationship between Title I responsibilities for 

reviewing living wills and Title II liquidation authority. 

Mr. Simonson began by reporting that, since the 

introduction of the single point of entry strategy at the 

Committee’s last meeting, the FDIC has been engaged in a number 

of activities focused on refining and operationalizing that 

strategy, including internal work streamsand the use of 

external consultantsto address topics identified by the 

Committee, such as governance, valuation, exit strategies, 

accounting, and claims management. He summarized a number of 

December 10, 2012 
61 

those activities, noting that the FDIC has continued to develop 

and refine the single point of entry strategy for the 

characteristics of the top five U.S. G-SIFI5, sharing summaries 

of those plans with domestic and international regulators; that 

interagency events have been hosted on a number of topics, such 

as: issues related to qualified financial contracts under Title 

II, funding and the use of the Orderly Liquidation Fund to 

ensure liquidity for necessary subsidiaries, logistical and 

practical components involved in the "three keys" process for 

exercising Title IT authority, issues related to hedge funds and 

large counterparties that are not G-SIFIs but which create 

systemic risk, and the impact of a SIFT failure on central 

counterparties; and that the FDIC has engaged in outreach 

efforts to educate key stakeholders on the single point of entry 

strategy. 

Turning to the triggers for implementing the Title IT 

liquidation authority, Mr. Wigand recalled that, in order to 

make the decision to implement the Title IT authority, the 

recommending officials and the determining officialthe U.S. 

Secretary of the Treasurymust consider a number of factors set 

forth in the Title IT statutory framework; that a key issue 

among those factors is whether the financial company is in 

default or in danger of default; and that, in the context of the 

need to resolve a SIFT, the most probable pathway is one in 

which liquidity becomes constrained and affects the firm’s 

ability to meet its obligations or honor a contract, which then 

becomes the proximate cause that necessitates the Title IT 

decision. He indicated that there may be underlying issues 

involving asset valuation or, if it is an idiosyncratic type of 

failure, fraud or another type of a situation that results in 

the market no longer providing liquidity to the firm, but that 

it will, in all likelihood, be a liquidity-driven event. As a 

result, he continued, there is likely to be a relatively short 

period of time from when the firm’s distress is known until some 

dynamic accelerates the level of distress very quickly and 

necessitates a decision to implement Title IT liquidation 

authority. 

Mr. Wigand next addressed the relationship between Title I 

and Title II, noting that Title I is basically an enhanced 

prudential supervisory tool designed to mitigate the probability 

of the default of a company subject to the provisions of Title I 

and to minimize the costs in the event of failure; that 

companies subject to Title I are required to produce living 

wills; and that the content of those living wills is very useful 

for informing the FDIC at a granular level on its planning with 

December 10, 2012 
62 

respect to the implementation and execution of the Title II 

authority. He advised that the first option or course of action 

that the recommending officials would consider implementing is a 

resolution under the Title I frameworkthrough bankruptcy, the 

FDI Act for insured depository institutions, Securities 

Investors Protection Act for broker-dealers, or the existing 

resolution regimes in the jurisdictions that host subsidiaries 

of the companywith a resolution under the Title II framework 

only serving as a backup option if it is determined that the 

Title I resolution would result in systemic consequences. He 

concluded by emphasizing that it is important to consider the 

Title I and Title II processes together because the planning 

that is built around the Title I process informs the FDIC on how 

to implement a Title II resolution on that specific firm, as 

well as the specific issues and impediments associated with that 

firm. 

During the discussion that followed, Committee members 

commented on a number of issues relating to the exercise of 

Title II authority. Mr. Herring expressed concern regarding the 

adequacy of a liquidity trigger, noting that one of the U.S. 

SIFIs is so well protected by deposit insurance that it is not 

likely to have a liquidity problem, even if it is deeply 

insolvent; he also questioned the use of book values to 

determine insolvency because book values lag substantially 

behind what is actually occurring on the balance sheet. In 

response, Mr. Wigand noted that knowing there is capital 

insolvency ahead of time would probably allow all of the 

authorities additional time to develop and modify the resolution 

approach, but the FDIC’s expectation is that some market 

perception of the firm’s capital solvency will result in a 

liquidity starvation before any determination of the true 

capital insolvency. Noting that the courts are going to give 

the regulatory authorities a very broad degree of discretion, 

Mr. Bradfield commented that this type of issue has been tested 

in the context of the FDIC’s authority and the courts basically 

have said that a regulated institution has consented to this 

framework; he added that the protections are in all the 

procedures that the authorities must follow to implement it, 

particularly the sound judgment that has to be employed to 

protect stability of the financial system. Mr. Peterson 

suggested that there is an interesting shift underway in the 

financial marketsparticularly the debt marketsbecause interest 

rates are very low; and that the FDIC should look at the 

hierarchies and levels of subordination of the different types 

of debt instruments inside a financial institution to determine 

whether there may be less interest in providing financing to 

December 10, 2012 
63 

holding companies. Mr. Wigand indicated that the FDIC has done 

that exercise on a general level within both holding companies 

and operating subsidiaries; that there is clearly an incentive 

to lend or borrow at the operating company level if there is an 

expectation of better protection at that level; and that the 

FDIC needs to address that incentive, since it may become a 

stronger incentive in the future. 

Commenting on the likelihood of a scenario with multiple 

failures due to systemic problems within sovereigns, such as the 

current crisis in the European banking system, Mr. Volcker asked 

how the resolution process deals with a systemic problem 

resulting in multiple failures. In response, Mr. Wigand noted 

that this question gets into territory beyond the scope of the 

implementation of Title II; that Title II is focused on 

developing a framework for allowing a company to fail without 

having its failure cause systemic consequences to the economy 

and financial services industry; and that the issues associated 

with the prospect of a systemic problemor some level of 

distress in the financial services industrythat is causing a 

high degree of distress and multiple failures of companies 

shifts the focus to determining what types of other programmatic 

responses should be implemented by supervisors or governments to 

deal with the systemic problem that is causing the failures. 

Noting that, as a matter of policy, earlier action is generally 

better in a resolution because delay increases the costs, Mr. 

Wright then asked if the FDIC can act earlier in the process, 

before there is a threat of bankruptcy. In response, Mr. Wigand 

advised that Title II defines what constitutes being in default 

or in danger of default; that, in order to implement Title II 

there has to be a super majority of the relevant regulatory 

authorities making that recommendation; and that one of the 

considerations in making that recommendation is that failure 

through the bankruptcy process would have negative consequences 

for the stability of the financial system. Mr. Wall also noted 

that it is the U.S. Secretary of the Treasury that makes the 

final decision under Title II and the condition of being in 

default or danger of default is one of only two bases through 

which that decision could be challenged in court. 

Chairman Gruenberg advised that, under the U.S. framework, 

the Federal Reserve has substantial enhanced prudential 

authorities relating to SIFIs, and this revised statutory 

framework provides an enhanced set of supervisory authorities 

over SIFIs that, in collaboration with an enhanced set of 

resolution authorities, serves as an institutional mechanism for 

the FDIC and the Federal Reserve to work together through the 

December 10, 2012 
64 

Title I resolution planning process to ensure some engagement 

between the prudential supervisor of the SIFIs and the 

resolution authority. He stated that, in 2008, the FDIC had 

very limited authoritiesnone at all over nonbank financial 

companies, limited authorities over bank holding companies, and 

no resolution authority over the holding company or affiliates 

of a bank regardless of how large or complex the institutionand 

no planning process or international engagement on cross-border 

issues, which made it very difficult to handle the crisis. 

Noting that the landscape today is very different than the one 

that existed four years ago but remains a work in progress, he 

emphasized that meaningful progress has been made to identify 

and respond to a crisis as it develops and the FDIC is in a much 

stronger position today than four years ago if it has to deal 

with a failed institution. On that point, Mr. Volcker agreed 

that significant progress has been made if the failure of an 

individual SIFI is envisioned, but he noted that the more likely 

scenario is a systemic problem in which this resolution 

procedure would have to be applied to multiple failing SIFIs. 

Mr. Tucker replied that that position is only a strong argument 

if the argument is made that an idiosyncratic failure will never 

occur. Citing some historical examples, such as Midland Bank 

and Continental Illinois, he emphasized that idiosyncratic 

failures do occasionally arise and that, if they can be resolved 

with an approach that puts the losses onto bondholders, it will 

increase market discipline and reduce the probability of wider 

systemic problems. 

Mr. Wigand next indicated that the last agenda topic for 

the meeting is the Title I resolution plan review process. 

After introducing Barbara J. Bouchard, Senior Associate 

Director, Division of Supervision, Federal Reserve, Mr. Wigand 

stated that he would provide a brief background of Title I and 

the related rulemaking, and then Ms. Bouchard would describe the 

Title I resolution plan review process. He first explained that 

Title I currently applies to bank holding companies with assets 

greater than $50 billion and any nonbank financial companies 

designated by the Financial Stability Oversight Council as 

systemically important, requiring these covered companies to 

submit living willsplans for rapid and orderly resolution under 

the U.S. Bankruptcy Code in the event of material financial 

distress or failure. He advised that the FDIC and the Federal 

Reserve jointly issued a final rule in November 2011 to 

implement the requirement for the resolution plans; that the 

FDIC and the Federal Reserve are currently in the process of 

reviewing the first round of plans; and that the plans must be 

submitted annually or in the event of a substantial material 

December 10, 2012 
65 

change to the company or, in some cases, more frequently. He 

also noted that the companies would be required to resubmit and 

refresh those plans because the markets are dynamic and 

institutions may change in ways that affect how they would be 

resolved on a certain date. Recalling the morning session’s 

discussion on international cooperation, he explained that many 

of the resolution implementation obstacles with an 

international dimension are also present domestically; that one 

of the key objectives associated with the initial round of plans 

is to identify resolution impedimentssuch as unwinding 

derivatives, netting out close-out positions, and dealing with 

misalignment of functions and operations with legal entitiesto 

provide a more granular institution-specific analysis; and that 

11 of the largest firms have submitted plans in the first round 

of filers. 

Ms. Bouchard then briefly described the Title I plan review 

process, noting that it is a two-part process involving: (1) a 

60-day completeness review to ensure that all of the regulatory 

requirements were addressed; and (2) an evaluation of each 

plan’s content and analysisvertically firm by firm and 

horizontally across issues to compare the firms. She advised 

that certain assumptions were provided to the firms, including 

the following: an idiosyncratic failure occurs; the firm’s 

failure does not significantly disrupt the market because other 

participants assume parts of the businesses; the firm has no 

access to unsecured fundinq; there is no extraordinary 

government support; and that all material entities tail. ine 

reported that the strategies presented by the firms included: 

sale of the whole company or specific legal entities; 

liquidation of assets or wind-down of positions and operations; 

FDIC receivership for the insured depository institutions; and 

an orderly closeout of positions at broker-dealers. She also 

reported that the firms identified a number of impediments to 

resolution, including several impediments that presented 

challenges to many of the firms such as: management information 

systems’ limitations on the ability to aggregate data at the 

legal entity level; uncertainty with respect to international 

regimes and actions; and liquidity needs and funding mechanisms. 

She concluded by noting that the next steps include the FDIC and 

the Federal Reserve providing feedback to the firms on their 

2012 plans, as well as additional guidance on acceptable or 

unacceptable assumptions and strategies. Mr. Wigand then opened 

the floor to comments and questions from the Committee members. 

December 10, 2012 
Mr. Herring asked if the international aspects of the 

resolution plans would be shared with the FSB Crisis Management 

Groups. In response, Mr. Simonson indicated that the FDIC’s 

discussions with the FSB Crisis Management Groups are currently 

more focused on the Title II strategies for those firms; and 

that it may be difficult to compare the firm-developed Title I 

resolution plans with the resolution plans for other 

jurisdictions, which are developed by those jurisdictions’ 

resolution authorities. Mr. Tucker offered several observations 

on the Title I plans, noting that it is difficult to understand 

the relationship between Title I and Title II, and that, based 

on inquiries he has received regarding uncertain international 

regimes and actions as one of the assumptions, it appears some 

of the firms going through the Title I process have been 

confused; that the Title I plan is an essay that many firms are 

destined to fail because of the constraints put on them in order 

to set up the conditions for the exercise of Title II; that 

there would need to be changes to U.S. bankruptcy law and 

international bankruptcy law for other host countries, because a 

U.S. bankruptcy judge cannot plan ex ante with a bankruptcy 

judge in the U.K. or another jurisdiction; and that the 

challenge is determining how to set the discretionary 

constraints on the Title I essay question in a way that yields 

the most useful information for Title II resolution planning, 

but does not confuse either the firms or their bondholders and 

other creditors. Noting that a substantial amount of work has 

been done to deal with an idiosyncratic failure, Mr. Volcker 

indicated that, even if the possibility of a more systemic 

threat has not been eliminated, the FDIC is clearly in a much 

better position to handle a systemic crisis than it was in 2007 

and 2008 because it now has the ability to provide liquidity 

support, arrange for recapitalization, and stabilize the 

situation. 

Mr. Johnson indicated that a major change in the FDIC’s 

ability to handle a systemic problem is the ability to provide 

liquidity support to different structuresnot just to banksand 

more tools for restructuring and replacing management. With 

respect to Title I, he suggested that part of legislative intent 

reflected in the Title I process is that the regulators can 

require structural or operational changes if they find something 

in the firm’s Title I plan that would be an impediment to a 

Title II resolution; and that simplifying the legal structures 

of these companies to remove the discrepancies between 

functional organization and legal organization would help to 

simplify the Title II resolution process. Ms. Bouchard 

responded by noting that the whole Title I planning process has 

December 10, 2012 
67 

been a useful mechanism to help the firm examine their structure 

and evaluate why they have that structure; and that, ultimately, 

those are the kinds of issues and options the FDIC is 

considering as it goes through this process. In response to Mr. 

Herring asking whether some of the firms have at least taken 

tentative measures to simplify their structure, Mr. Wigand 

advised that virtually all of the firms that filed the first 

round of plans have indicated that going through the Title I 

exercise and identifying impediments for resolution has informed 

them of inefficiencies they have as going concerns, as well as 

additional rationalization they need in their operations. He 

emphasized that whether or not structural simplification 

actually improves resolvability or what specific measures are 

necessary to improve resolvability remain open questions. Mr. 

Wall advised that, to the extent the firms make changes through 

the Title I process, it is important to ensure that those 

changes do not constitute greater impediments for the Title II 

process. In reference to the FDIC having more tools available 

for a resolution, Mr. Kohn expressed the opinion that a key tool 

is the ex ante commitment to bail-in long term creditorsat 

least at the holding company leveland that, hopefully, it 

facilitates a commitment from the regulators to make sure there 

is a sufficient amount of debt at the holding company level to 

make this thing work, because that is the source for capital 

that facilitates obtaining funding for the operating 

subsidiaries. In a follow up to Mr. Kohn’s point, Mr. Johnson 

asked if rules are being proposed regarding how much capital 

there must be in relation to potential losses, as well as who 

holds that capital. Ms. Bouchard responded by advising that the 

FDIC does have the authority to impose that kind of requirement 

at the holding company level and is actively engaged in 

discussions on those issues to ensure that any such requirement 

fulfills the Title II needs. 

In bringing the meeting to a close, Chairman Gruenberg 

thanked Mr. Tucker and the Committee members for their 

contributions, noting that their input is enormously valuable to 

the FDIC. Emphasizing that there are significant challenges 

that should not be underestimated, he stressed that substantial 

progress has been made from where the FDIC was in 2008, and that 

the framework in which the FDIC is operating today is really 

quite different; that there are challenging new issues relating 

to these global systemic institutions, including issues that are 

beyond the authorities in current laws which will be the subject 

of debate and discussion; and that, regardless of the outcome of 

that debate and discussion, there are authorities in place today 

that are very important and relevant for dealing with the issues 

December 10, 2012 
of these companies. He concluded by advising that both the 

Title I authorities relating to the resolution plans that the 

companies themselves must submit and the FDIC’s new authorities 

under Title II should be utilized as effectively as possible. 

There being no further business, the meeting was adjourned 

at 3:12 p.m. 

Robert E. Feldman 

Executive Secretary 

Federal Deposit Insurance Corporation 

and Committee Management Officer 

FDIC Systemic Resolution Advisory 

Committee 

December 10, 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 

December 10, 2012 - 8:53 A.M. 

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

minutes are accurate and complete. 

Martin J. Gru4iberg 

Chairman 

Board of Directors 

Federal Deposit Insurance Corporation