1

December 11, 2013

The Single Point of Entry

Resolution Strategy
Agenda

• Background

• Overview of Title II and Resolution

• SIFI Structure

• Single Point of Entry as a Resolution Strategy

• Resolution Process

2
Background

• The financial crisis that began in late 2007 

highlighted deficiencies in the existing U.S. financial 

institution resolution regime

• In the aftermath of the crisis, Congress enacted the 

Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act)

• Title I and Title II of the Dodd-Frank Act provide 

significant authorities to the FDIC and other 

regulators to address the failure of a systemically 

important financial institution (SIFI)

3
Background

• Title I of the Dodd-Frank Act requires all covered financial 

companies to prepare resolution plans to demonstrate 

how they could be resolved in a rapid and orderly manner 

under the U.S. Bankruptcy Code

• Bankruptcy is the preferred option, however, Congress 

recognized that a SIFI may not be resolvable under 

bankruptcy without posing risk to U.S. financial stability

• Title II provides a back-up authority to place a SIFI into an 

FDIC receivership process if a resolution through 

bankruptcy would have serious adverse effects on U.S. 

financial stability

4
Title II - Orderly Liquidation Authority

• The Orderly Liquidation Authority (OLA) provides 

tools necessary to effect a rapid and orderly 

resolution of a covered financial company

• Title II establishes certain policy goals for the OLA

• Owners and management responsible for a covered financial 

company’s failure must be held accountable

• Stability of the U.S. financial system must be maintained

• Resolution of the failed covered financial company must 

impose losses in accordance with statutory priorities without 

imposing a cost on U.S. taxpayers

5
Resolution under Title II

• Dual objectives:

• Promote market discipline

• Maintain stability in the U.S. financial system

• Impediments:

• Avoid multiple competing insolvencies

• Maintain essential services and critical operations

• Ensure counterparties cannot take actions that would 

create systemic disruption

• Ensure access to liquidity

• Promote cooperation with foreign authorities

6
SIFI Structures: Challenges to Resolution

• U.S. SIFIs organized under a holding company structure 

with hundreds or thousands of interconnected entities

• Span legal and regulatory jurisdictions

• Highly integrated

• Core business lines often not aligned with legal entities

• Funding dispersed between affiliates as need arises

• Resolution of one subsidiary could trigger collapse of 

entire company and transmit adverse effects throughout 

financial system

7
• The FDIC is developing the Single Point of Entry 

(SPOE) strategy as a possible approach to 

resolving a G-SIFI

• Places failed/failing top-tier parent holding company 

into receivership

• Holds shareholders, debt holders and management of toptier parent company accountable for failure

• Keeps operating subsidiaries open

• Protects against contagion in the financial system

• Maintains vital linkages among critical operating 

subsidiaries

• Ensures continuity of services

8

The Single Point of Entry Strategy
Resolution Process: Receivership

• Transfer assets of receivership estate to newly created bridge 

financial company (bridge company)

• Leave most liabilities in receivership estate; transfer obligations 

supporting subsidiaries’ contracts to bridge 

• Replace officers and directors responsible for failure; appoint new 

Board of Directors

• Enter into initial Operating Agreement

• Determine cause of failure and develop plan to remediate 

• Retain accounting and valuation consultants acceptable to FDIC and 

complete valuation work and prepare audited financial statements. 

• Develop business plan for bridge 

• Develop funding, liquidity and capital plans subject to regulator approval

• Establish and implement plan for restructuring

• Change in businesses, shrinkage of businesses, liquidation of certain 

subsidiaries or business lines, closure of certain operations

9
• Expect well-capitalized bridge company and its 

subsidiaries to obtain funding directly from customary 

sources in private markets

• Market conditions could be such that private sources of 

funding may not be immediately available. 

• If private-sector funding cannot be immediately obtained, 

the Dodd-Frank Act provides for liquidity from an Orderly 

Liquidation Fund (OLF); if needed, the FDIC would utilize 

OLF funds on a short-term transitional basis

• Only available on a fully secured basis 

• Backed by assessments (if necessary) against the largest 

financial companies

• Taxpayer losses prohibited

10

Resolution Process: Funding
• Dodd-Frank Act sets claims priority

• Shareholders’ equity, subordinated debt and 

substantial portion of unsecured liabilities of holding 

company left in receivership

• Certain claims (e.g. vendor claims) may be 

transferred to bridge company

• Transfers that have a disparate impact only made if 

necessary to:

• Maximize return to creditors left in receivership, and

• Initiate and continue operations essential to the bridge 

company

• FDIC has limited its discretion to treat similarly situated 

creditors differently

11

Resolution Process: Claims
• Bridge company terminated upon FDIC approval of 

enforceable restructuring plan

• Creditor claims satisfied through exchange of claims for newly 

issued securities in a new holding company (NewCo) or 

companies (NewCos)

• Valuation of bridge company

• Fresh start accounting 

• Prepared by bridge company, accountants, and consultants 

• Final valuation reviewed by FDIC advisor and approved by the FDIC

• Issuance and distribution of new equity, debt, and, possibly, 

contingent securities (warrants or options) in NewCo or NewCo(s)

12

Resolution Process: Termination of 

Bridge Company 
Claims Waterfall ($B)

13

Resolution Process: Capitalization of 

NewCo and Distribution of Losses 

$0

$50

$100

$150

$200

$250

$300

ABC Universal Holdings Inc Loss Estimate and Recapitalized NewCo

Equity $128

Sub. Debt $15

Unsecured $120

Secured $11

Loss Estimate

$155

New Co. Equity

$100

New Co Secured $11

Unsecured Debt $5

New Convertible

Sub. Debt $3
Timeline for Resolution

14

PrefailurePost 

Recap

Phase Activity -5 -2 -1 0 30 60 90 120 150 180-

270

 Resolution plan review; Title II planning

 FDIC valuation

 FDIC board case / Orderly Liquidation Plan

 Joint recommendation to UST Secretary (3 key process)

 UST Secretary determination (with the President)

 Judicial review (if applicable)

Appointment Receiver appointed; bridge chartered; board/CEO appointed

 Remove management responsible for failure (immediate/ongoing)

 Operating agreement effective

 Claims class determination

 Claims bar

 Valuation / prepare new financials / fairness opinion

 Recapitalization & business / capital / liquidity plans approved

 Issue new securities / terminate bridge

Agreement to Continue Restructuring Plan/ Approval of NewCo 

(or NewCos) BHC Application

Post-Bridge Restructuring / divestiture complete; resolvable in bankruptcy

Ongoing

Determination, Appointment

and Bridge Period

Day

Ongoing

Failure

Resolution

Planning

Determination

Bridge /

Receivership

Recapitalization