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Title II Orderly Liquidation Authority

December 10, 2012
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Agenda 

 Update on Title II

 Operationalizing Title II

 Inter-Agency Coordination & Events

 Outreach

 Decision to Implement Title II

 Title I and Title II Relationship
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Operationalizing Title II

 At the January 2012 SRAC meeting, the FDIC introduced its "single entry” 

strategy for the resolution of a U.S. based G-SIFI using the Order 

Liquidation Authority under Title II of the Dodd Frank Act. Since then the 

FDIC has been working to operationalize the strategy and enhance FDIC's 

preparedness.

 2012 operationalizing activities included:

- FDIC internal workstreams and use of external consultants focused on 

Governance, Valuation, Exit Strategy, Accounting and Claims Management. 

- OCFI leading multiple tabletops and simulations with other federal agencies.

 OCFI continues to develop and refine Title II resolution strategies that 

consider the specific characteristics of each of the five largest U.S. 

domiciled SIFIs. Summaries of these plans have been shared with domestic 

and international regulators.
 Working with other federal regulators, OCFI led, hosted and facilitated events 

covering a variety of topics, including:

− QFC’s under Title II

− Funding and use of the Orderly Liquidation Fund

− “Three Keys” Process

− Hedge Funds/Large Counterparties that are not G-SIFI’s and Systemic 

Risk 

− Central Counterparties

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Inter-Agency Coordination Events
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Outreach

 Since developing the "single entry” strategy, the FDIC has embarked 

on a program of outreach and education with key stakeholders.

− Other government agencies (U.S. Treasury, Federal Reserve 

Board, Federal Reserve Banks, OCC, SEC and CFTC)

− Academic Community

− Industry Groups

− Fixed Income Investors

− International Regulators

 In 2012, OCFI participated in over 20 such outreach events.
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§ 203(a)(2), Recommendation of FRB and FDIC/SEC/FIO1 § 203(b), Determination by Treasury Secretary

Whether financial company is in default or is in danger of default (Evaluation) 

(§ 203(a)(2)(A))

Whether financial company is in default or is in danger of default (Determination) 

(§ 203(b)(1))

Effect that default would have on U.S. financial stability (Description) (§ 203(a)(2)(B))

Why a case under the Bankruptcy Code is inappropriate (Evaluation) (§ 203(a)(2)(F))

Failure of the financial company and its resolution under otherwise applicable Federal / 

State law would have serious adverse effects on U.S. financial stability (Determination) 

(§ 203(b)(2))

Effect that default would have on economic conditions or financial stability for low 

income, minority, or underserved communities (Description) (§ 203(a)(2)(C))

[No corresponding provision]

Nature and the extent of actions to be taken under Title II of the Act regarding the 

financial company (Recommendation) (§ 203(a)(2)(D))

Any action under § 204 would avoid or mitigate the adverse effects on which a 

determination was made pursuant to § 203(b)(2), taking into consideration the 

effectiveness of the action in mitigating potential adverse effects on the financial 

system, the cost to the general fund of the Treasury, and the potential to increase 

excessive risk taking on the part of creditors, counterparties, and shareholders in the 

financial company (Determination) (§ 203(b)(5))

Likelihood of a private sector alternative to prevent the default (Evaluation) 

(§ 203(a)(2)(E))

Absence of viable private sector alternative to prevent the default (Determination) 

(§ 203(b)(3))

Effects on creditors, counterparties, and shareholders of the financial company and 

other market participants (Evaluation) (§ 203(a)(2)(G))

Any effect on the claims of creditors, counterparties, and shareholders of the financial 

company and other market participants as a result of actions to be taken under Title II 

is appropriate, given the impact that any action taken would have on U.S. financial 

stability (Determination) (§ 203(b)(4))

Whether the company is a financial company under § 201 of the Dodd-Frank Act 

(Evaluation) (§ 203(a)(2)(H))

The company is a financial company under § 201 of the Dodd-Frank Act 

(Determination) (§ 203(b)(7))

[No corresponding provision] A Federal regulatory agency has ordered the financial company to convert all of its 

subject convertible debt instruments (Determination) (§ 203(b)(6))

[1] Where the financial company or the largest domestic subsidiary thereof is a broker or a dealer, the recommendation is made by the FRB and the U.S. Securities and Exchange 

Commission, in consultation with the FDIC. Where the financial company or the largest domestic subsidiary thereof is an insurance company, the recommendation is made by the 

FRB and the Director of the Federal Insurance Office, in consultation with the FDIC.

Comparison of Title II Recommendation and Determination
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Definition of Default

Evaluation of whether the financial company is in default or in danger of 

default

A financial company is considered to be in default or in danger of default if: 

A. A case has been, or likely will promptly be, commenced with respect to the 

financial company under the Bankruptcy Code; 

B. The financial company has incurred, or is likely to incur, losses that will 

deplete all or substantially all of its capital, and there is no reasonable 

prospect for the company to avoid such depletion; 

C. The assets of the financial company are, or are likely to be, less than its 

obligations to creditors and others; or 

D. The financial company is, or is likely to be, unable to pay its obligations 

(other than those subject to a bona fide dispute) in the normal course of 

business. 

Section 203(c)(4) of the Dodd-Frank Wall Street Reform and Consumer Protection Act 

(“the Act”), 12 U.S.C. §5383(c)(4).
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Title I and Title II Relationship

 Under the Dodd-Frank Act, bankruptcy is the first resolution option in the 

event of a failure of a systemic financial company.

 To make this prospect achievable, Title I of the Act requires that all large 

systemically important financial companies submit living wills to 

demonstrate how they would be resolved under the Bankruptcy Code. 

 These living wills will enable both the firms and regulators to understand 

and rationalize the parts of a SIFI’s business and operations that could 

have systemic consequences in bankruptcy and take the necessary steps 

to address impediments to resolution. 

 The objective is to have a credible plan demonstrating how resolution 

under the Bankruptcy Code and other non-Title II insolvency frameworks 

would be orderly and not pose systemic risks.