This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

64173 

Vol. 75, No. 201 

Tuesday, October 19, 2010 

DEPARTMENT OF ENERGY 

10 CFR Parts 429, 430 and 431 

[Docket No. EERE–2010–BT–CE–0014] 

RIN 1904–AC23 

Energy Conservation Program: 

Certification, Compliance, and 

Enforcement for Consumer Products 

and Commercial and Industrial 

Equipment 

AGENCY: Office of Energy Efficiency and 

Renewable Energy, Department of 

Energy. 

ACTION: Proposed rule; extension of 

comment period. 

SUMMARY: This document announces an 

extension of the time period for 

submitting written comments on the 

notice of proposed rulemaking, 

regarding the Energy Conservation 

Program: Certification, Compliance, and 

Enforcement for Consumer Products and 

Commercial and Industrial Equipment. 

The comment period is extended to 

October 29, 2010. 

DATES: The comment period for the 

proposed rule published on September 

16, 2010 (75 FR 56796) is extended to 

October 29, 2010. 

ADDRESSES: Interested persons are 

encouraged to submit comments using 

the Federal eRulemaking Portal at 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

Alternatively, interested persons may 

submit comments, identified by docket 

number EERE–2010–BT–CE–0014, by 

any of the following methods: 

• E-mail: CCE–2010–BT–CE– 

0014@ee.doe.gov. Include EERE–2010– 

BT–CE–0014 in the subject line of the 

message. 

• Mail: Ms. Brenda Edwards, U.S. 

Department of Energy, Building 

Technologies Program, Mailstop EE–2J, 

Revisions to Energy Efficiency 

Enforcement Regulations, EERE–2010– 

BT–CE–0014, 1000 Independence 

Avenue, SW., Washington, DC 20585– 

0121. Phone: (202) 586–2945. Please 

submit one signed paper original. 

• Hand Delivery/Courier: Ms. Brenda 

Edwards, U.S. Department of Energy, 

Building Technologies Program, 6th 

Floor, 950 L’Enfant Plaza, SW., 

Washington, DC 20024. Phone: (202) 

586–2945. Please submit one signed 

paper original. 

Instructions: All submissions received 

must include the agency name and 

docket number or RIN for this 

rulemaking. Note that all comments 

received will be posted without change, 

including any personal information 

provided. 

Docket: For access to the docket to 

read background documents, or 

comments received, go to the Federal 

eRulemaking Portal at http:// 

www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

Ashley Armstrong, 202–586–6590, email: Ashley.Armstrong@ee.doe.gov, or 

Celia Sher, Esq., 202–287–6122, e-mail: 

Celia.Sher@hq.doe.gov. 

SUPPLEMENTARY INFORMATION: The U.S. 

Department of Energy (DOE) proposed 

revisions to its existing certification, 

compliance, and enforcement 

regulations for certain consumer 

products and commercial and industrial 

equipment covered under the Energy 

Policy and Conservation Act of 1975, as 

amended (EPCA or the ‘‘Act’’), in a 

notice of proposed rulemaking (NOPR) 

published in the Federal Register on 

September 16, 2010. 75 FR 56796. These 

regulations provide for sampling plans 

used in determining compliance with 

existing standards, manufacturer 

submission of compliance statements 

and certification reports to DOE, 

maintenance of compliance records by 

manufacturers, and the availability of 

enforcement actions for improper 

certification or noncompliance with an 

applicable standard. The NOPR 

informed interested parties that DOE 

would accept written comments through 

October 18, 2010. 

The Air-Conditioning, Heating, and 

Refrigeration Institute (AHRI) requested 

an extension of the time to submit 

comments. In its request, AHRI stated 

that the additional time is necessary for 

AHRI and its members to properly 

respond to the questions and issues 

raised in the proposed rule given the 

potential impact of the proposed rule on 

the air conditioning, heating and 

refrigeration industry. 

Based on AHRI’s request and the 

number of questions and issues raised 

during the public meeting, DOE believes 

that extending the comment period to 

allow additional time for interested 

parties to submit comments is 

appropriate. Therefore, DOE is 

extending the comment period until 

October 29, 2010 to provide interested 

parties additional time to prepare and 

submit comments. DOE will accept 

comments received no later than 

October 29, 2010 and will not consider 

any further extensions to the comment 

period. 

Issued in Washington, DC, on October 13, 

2010. 

Cathy Zoi, 

Assistant Secretary, Energy Efficiency and 

Renewable Energy. 

[FR Doc. 2010–26230 Filed 10–18–10; 8:45 am] 

BILLING CODE 6450–01–P 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 380 

Notice of Proposed Rulemaking 

Implementing Certain Orderly 

Liquidation Authority Provisions of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The FDIC is proposing a rule 

(‘‘Proposed Rule ’’), with request for 

comments, which would implement 

certain provisions of its authority to 

resolve covered financial companies 

under Title II of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (the ‘‘Dodd-Frank Act’’) (July 21, 

2010). The FDIC’s intent in issuing this 

Proposed Rule is to provide greater 

clarity and certainty about how key 

components of this authority will be 

implemented and to ensure that the 

liquidation process under Title II 

reflects the Dodd-Frank Act’s mandate 

of transparency in the liquidation of 

failing systemic financial companies. 

DATES: Written comments on the 

Proposed Rule and questions on that 

rule must be received by the FDIC not 

later than November 18, 2010. Written 

responses to the additional questions 

posed by the FDIC must be received by 

the FDIC not later than January 18, 

2011. 


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1The immediate judicial review required by the 

Dodd-Frank Act contrasts with the analogous 

provisions in the National Bank Act (12 U.S.C. 

191(b)), the Home Owner’s Loan Act (12 U.S.C. 

1464(c)(2)(B)), and the Federal Deposit Insurance 

Act (12 U.S.C. 1821(c)(7)). Each of these statutes 

permits judicial review of the appointment of the 

receiver, but only after the appointment has taken 

effect. 

2 If the court overrules the Secretary’s 

determination, the Secretary is provided the 

opportunity to amend and refile the petition 

immediately. The Dodd-Frank Act includes appeal 

provisions, but does not provide for a stay of the 

actions taken by the receiver after its appointment. 

ADDRESSES: You may submit comments 

by any of the following methods: 

• Agency Web Site: 

http:www.fdic.gov/regulations/laws/ 

federal. Follow instructions for 

submitting comments on the Agency 

Web Site. 

• E-mail: Comments@FDIC.gov. 

Include ‘‘Orderly Liquidation’’ in the 

subject line of the message. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

• Hand Delivery/Courier: Guard 

station at the rear of the 550 17th Street 

Building (located on F Street) on 

business days between 7 a.m. and 5 p.m. 

(EDT). 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Public Inspection: All comments 

received will be posted without change 

to http://www.fdic.gov/regulations/laws/ 

federal including any personal 

information provided. Paper copies of 

public comments may be ordered from 

the Public Information Center by 

telephone at (877) 275–3342 or (703) 

562–2200. 

FOR FURTHER INFORMATION CONTACT: 

Michael Krimminger, Office of the 

Chairman, 202–898–8950; R. Penfield 

Starke, Legal Division, 703–562–2422; 

Federal Deposit Insurance Corporation, 

550 17th Street, NW., Washington, DC 

20429. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Prior to the enactment of the DoddFrank Act, Public Law 111–203, 12 

U.S.C. 5301 et seq., on July 21, 2010, 

there was no common or adequate 

statutory scheme for the orderly 

liquidation of a financial company 

whose failure could adversely affect the 

financial stability of the United States. 

Instead, insured depository institutions 

were subject to an FDIC-administered 

receivership under applicable 

provisions of the Federal Deposit 

Insurance Act (‘‘FDI Act’’), insurance 

companies were subject to insolvency 

proceedings under individual State’s 

laws, registered brokers and dealers 

were subject to the U.S. Bankruptcy 

Code and proceedings under the 

Securities Investor Protection Act, and 

other companies (including the parent 

holding company of one or more 

insured depository institutions or other 

financial companies) were eligible to be 

a debtor under the U.S. Bankruptcy 

Code. These disparate insolvency 

regimes were found to be inadequate to 

effectively address the actual or 

potential failure of a financial company 

that could adversely affect economic 

conditions or financial stability in the 

United States. In such a case, financial 

support for the company sometimes was 

the only viable option available for the 

Federal government to avoid or mitigate 

serious adverse effects on economic 

conditions and financial stability that 

could result from the company’s failure. 

With the enactment of the DoddFrank Act, Federal regulators have the 

tools to resolve a failing financial 

company that poses a significant risk to 

the financial stability of the United 

States. The receivership process 

established under Title II of the DoddFrank Act provides for an orderly 

liquidation of such a ‘‘covered financial 

company’’ in a way that addresses the 

concerns and interests of legitimate 

creditors while also protecting broader 

economic and taxpayer interests. 

Appointment of Receiver 

Title II of the Dodd-Frank Act 

provides a process for the appointment 

of the FDIC as receiver of a failing 

financial company that poses significant 

risk to the financial stability of the 

United States (a ‘‘covered financial 

company’’). Under this process, certain 

designated Federal regulatory agencies 

must recommend to the Secretary of the 

Treasury (the ‘‘Secretary’’) that the 

Secretary, after consultation with the 

President, make a determination that 

grounds exist to appoint the FDIC as 

receiver of the company. The Federal 

Reserve Board and the Securities and 

Exchange Commission will make the 

recommendation if the company or its 

largest U.S. subsidiary is a broker or a 

dealer; the Federal Reserve Board and 

the Director of the Federal Insurance 

Office will make the recommendation if 

the company or its largest subsidiary is 

an insurance company; and the Federal 

Reserve Board and the FDIC will make 

the recommendation in all other cases. 

This procedure is similar to that which 

is applied to systemic risk 

determinations under section 13 of the 

FDI Act (12 U.S.C. 1823(c)(4)). 

The Dodd-Frank Act requires that 

recommendations to the Secretary 

include an evaluation of whether the 

covered financial company is in default 

or in danger of default, a description of 

the effect that the company’s default 

would have on the financial stability of 

the United States, and an evaluation of 

why a case under the Bankruptcy Code 

would not be appropriate. In 

determining whether the FDIC should 

be appointed as receiver, the Secretary 

must make specific findings in support, 

including: that the company is in 

default or in danger of default; that the 

failure of the company and its 

resolution under otherwise applicable 

Federal or State law would have serious 

adverse effects on financial stability in 

the United States; no viable private 

sector alternative is available; any effect 

on the claims or interests of creditors, 

counterparties, and shareholders is 

appropriate; any action under the 

liquidation authority will avoid or 

mitigate such adverse effects taking into 

consideration the effectiveness of the 

action in mitigating the potential 

adverse effects on the financial system, 

cost to the general fund of the Treasury, 

and the potential to increase excessive 

risk taking; a Federal regulatory agency 

has ordered the company to convert all 

of its convertible debt instruments that 

are subject to regulatory order; and the 

company satisfies the definition of a 

financial company under the law. 

If the Secretary makes the 

recommended determination and the 

board of directors (or similar governing 

body) of the company acquiesces or 

consents to the appointment, then the 

FDIC’s appointment as receiver is 

effective immediately. If the company’s 

governing body does not acquiesce or 

consent, the Dodd-Frank Act provides 

for immediate judicial review by the 

United States District Court for the 

District of Columbia of whether the 

Secretary’s determinations that the 

covered financial company is in default 

or danger of default and that it meets the 

definition of financial company under 

Title II are arbitrary and capricious.1 If 

the court upholds the Secretary’s 

determination, it will issue an order 

authorizing the Secretary to appoint the 

FDIC as receiver.2 If the court fails to act 

within twenty-four hours of receiving 

the petition, then the appointment of 

the receiver takes effect by operation of 

law. 

Orderly Liquidation 

Title II of the Dodd-Frank Act 

(entitled ‘‘Orderly Liquidation 

Authority’’) also defines the policy goals 

of the liquidation proceedings and 

provides the powers and duties of the 

FDIC as receiver for a covered financial 


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3Unless the context requires otherwise, all 

section references are to the Dodd-Frank Act. 

company. Section 204(a) 3 succinctly 

summarizes those policy goals as the 

liquidation of ‘‘failing financial 

companies that pose a significant risk to 

the financial stability of the United 

States in a manner that mitigates such 

risk and minimizes moral hazard.’’ The 

statute goes on to say that ‘‘creditors and 

shareholders will bear the losses of the 

financial company’’ and the FDIC is 

instructed to liquidate the covered 

financial company in a manner that 

maximizes the value of the company’s 

assets, minimizes losses, mitigates risk, 

and minimizes moral hazard. See 

sections 204(a) and 210(a)(9)(E). 

Fundamentally, a liquidation under the 

Dodd-Frank Act is a liquidation of the 

company that imposes the losses on its 

creditors and shareholders. Not only is 

the FDIC prohibited from taking an 

equity interest in or becoming a 

shareholder of a covered financial 

company or any covered subsidiary, but 

other provisions of the Dodd-Frank Act 

bar any Federal government bail-out of 

a covered financial company. See 

section 210(h)(3)(B). In this way, the 

statute will prevent any future taxpayer 

bailout by providing a liquidation 

process that will prevent a disorderly 

collapse, while ensuring that taxpayers 

bear none of the costs. 

Similarly, management, directors, and 

third parties who are responsible for the 

company’s failing financial condition 

will be held accountable. The FDIC 

must remove any management and 

members of the board of directors of the 

company who are responsible for the 

failing condition of the covered 

financial company. See section 206. 

While ensuring that creditors bear the 

losses of the company’s failure under a 

specific claims priority, Title II 

incorporates procedural and other 

protections for creditors to ensure that 

they are treated fairly. For example, 

creditors can file a claim with the 

receiver and, if dissatisfied with the 

decision, may file a case in U.S. district 

court in which no deference is given to 

the receiver’s decision. See section 

210(a)(2)–(4). Once claims are proven, 

the FDIC has the authority to make 

interim payments to the creditors, 

consistent with the priority for payment 

of their allowed claims, as it does in 

resolutions of insured depository 

institutions. This accelerated or advance 

dividend authority, provided in section 

210(a)(7), is a valuable tool to provide 

payments to creditors and lessen the 

economic and financial impact of the 

liquidation. In addition, creditors also 

are guaranteed that they will receive no 

less than the amount they would have 

received if the covered financial 

company had been liquidated under 

Chapter 7 of the Bankruptcy Code. See 

section 210(a)(7)(B) and (d)(2)(B). 

Shareholders of a covered financial 

company will not receive payment until 

after all other claims are fully paid. See 

section 210(b)(1). This helps ensure that 

the priority of payments will be 

enforced. 

Parties who are familiar with the 

liquidation of insured depository 

institutions under the FDI Act or the 

liquidation of companies under the 

Bankruptcy Code will recognize many 

parallel provisions in Title II. Some 

provisions are drawn from analogous 

provisions of the Bankruptcy Code in 

order to clarify and supplement the 

authority that the FDIC normally 

exercises in a bank receivership. The 

provisions of Title II governing the 

claims process (including the 

availability of judicial review of claims 

disallowed by the receiver), the 

termination or repudiation of contracts, 

and the treatment of qualified financial 

contracts are modeled after the FDI Act, 

while provisions that empower the FDIC 

to avoid and recover fraudulent 

transfers, preferential transfers, and 

unauthorized transfers of property by 

the covered financial company are 

drawn from Bankruptcy Code 

provisions. The rules of Title II 

governing the setoff of mutual debt 

provide equivalent protections to those 

under the Bankruptcy Code. 

The liquidation rules of Title II are 

designed to create parity in the 

treatment of creditors with the 

Bankruptcy Code and other normally 

applicable insolvency laws. This is 

reflected in the direct mandate in 

section 209 of the Dodd-Frank Act to ‘‘to 

seek to harmonize applicable rules and 

regulations promulgated under this 

section with the insolvency laws that 

would otherwise apply to a covered 

financial company.’’ One of the goals of 

the Proposed Rule would be to begin the 

implementation of this mandate in 

certain key areas. Of particular 

significance is § 380.2 of the Proposed 

Rule, which clarifies that the authority 

to make additional payments to certain 

creditors will never be used to provide 

additional payments, beyond those 

appropriate under the defined priority 

of payments, to shareholders, 

subordinated debt holders, and 

bondholders. The FDIC, in this 

Proposed Rule, is proposing that the 

creditors of the covered financial 

company will never meet the statutory 

criteria for receiving such additional 

payments. 

Fundamental to an orderly liquidation 

of a covered financial company is the 

ability to continue key operations, 

services, and transactions that will 

maximize the value of the firm’s assets 

and avoid a disorderly collapse in the 

market place. The FDIC has long had 

authority under the Federal Deposit 

Insurance Act to continue operations 

after the closing of failed insured banks 

if necessary to maximize the value of 

the assets in order to achieve the ‘‘least 

costly’’ resolution or to prevent ‘‘serious 

adverse effects on economic conditions 

or financial stability.’’ 12 U.S.C. 1821(d) 

and 1823(c). Under the Dodd-Frank Act, 

the corresponding ability to continue 

key operations, services, and 

transactions is accomplished, in part, 

through authority for the FDIC to charter 

a bridge financial company. The bridge 

financial company is a completely new 

entity that will not be saddled with the 

shareholders, debt, senior executives or 

bad assets and operations that 

contributed to the failure of the covered 

financial company or that would 

impede an orderly liquidation. 

Shareholders, debt holders, and 

creditors will receive ‘‘haircuts’’ based 

on a clear priority of payment set out in 

section 210(b). As in prior bridge banks 

used in the resolution of large insured 

depository institutions, however, the 

bridge financial company authority will 

allow the FDIC to stabilize the key 

operations of the covered financial 

company by continuing valuable, 

systemically important operations. 

This authority is an important tool for 

the elimination of ‘‘too big to fail’’ 

because it provides the FDIC with the 

authority to prevent a disorderly 

collapse, while ensuring that bail-outs 

of failing companies will not occur. 

However, overly broad application of 

this authority could lead creditors to 

assume that they will be protected and 

impair the needed market discipline. 

For this reason, it is essential that the 

FDIC clarify that certain categories of 

creditors will never receive additional 

payments under this authority, that all 

unsecured and under-secured creditors 

of the failed company should expect 

that they will incur losses, and that the 

statutory standards for application of 

this authority will be rigorously applied 

in the liquidation of a covered financial 

company. 

To emphasize that all unsecured 

creditors should expect to absorb losses 

along with other creditors, the Proposed 

Rule clarifies the narrow circumstances 

under which creditors could receive any 

additional payments or credit amounts 

under Sections 210(b)(4), (d)(4), or 

(h)(5)(E). Under the Proposed Rule, such 

payments or credit amounts could be 


jlentini on DSKJ8SOYB1PROD with PROPOSALS
64176 Federal Register / Vol. 75, No. 201 / Tuesday, October 19, 2010 / Proposed Rules 

4Examiner’s Report, pg. 725, http://lehmanreport.

jenner.com/VOLUME%202.pdf. 

provided to a creditor only if the FDIC 

Board of Directors, by a recorded vote, 

determines that the payments or credits 

are necessary and meet the requirements 

of Sections 210(b)(4), (d)(4), or (h)(5)(E), 

as applicable. The Proposed Rule 

further provides that the authority of the 

Board to make this decision cannot be 

delegated to management or staff of the 

FDIC. By requiring a vote by the Board, 

the Proposed Rule will require a 

decision on the record and ensure that 

the governing body of the FDIC has 

made a specific determination that such 

payments are necessary to the essential 

operations of the receivership or bridge 

financial company, to maximize the 

value of the assets or returns from sale, 

or to minimize losses. 

Assets and operations that are 

necessary to maximize the value in the 

liquidation or prevent a disorderly 

collapse can be continued seamlessly 

through the bridge financial company. 

This is supported by the clear statutory 

provisions that contracts transferred to 

the bridge financial company cannot be 

terminated simply because they are 

assumed by the bridge financial 

company. See section 210(c)(10). As in 

the FDI Act, the FDIC has the authority 

to require contracting parties to 

continue to perform under their 

contracts if the contracts are needed to 

continue operations transferred to the 

bridge. Under the Dodd-Frank Act, the 

contracting parties must continue to 

perform so long as the bridge company 

continues to perform. In contrast to the 

Bankruptcy Code, the FDIC under the 

Dodd-Frank Act can similarly require 

parties to financial market contracts to 

continue to perform so long as statutory 

notice of the transfer is provided within 

one business day after the FDIC is 

appointed as receiver. This is an 

important tool to allow the FDIC to 

maximize the value of the failed 

company’s assets and operations and to 

avoid market destabilization. This 

authority will help preserve the value of 

the company by allowing continuation 

of critical business operations. If 

financial market contracts are 

transferred to the bridge company, it 

also can prevent the immediate and 

disorderly liquidation of collateral 

during a period of market distress. This 

cannot be done under the Bankruptcy 

Code. The absence of funding for 

continuing valuable contracts and the 

rights of counterparties under the 

Bankruptcy Code to immediately 

terminate those contracts resulted in a 

loss of billions of dollars in market 

value to the bankruptcy estate in the 

Lehman insolvency.4

The bridge financial company 

arrangement will provide a timely, 

efficient, and effective means for 

preserving value in an orderly 

liquidation and avoiding a destabilizing 

and disorderly collapse. While the 

covered financial company’s board of 

directors and the most senior 

management responsible for its failure 

will be replaced, as required by section 

204(a)(2), operations would be 

continued by the covered financial 

company’s employees under the 

strategic direction of the FDIC and 

contractors employed by the FDIC to 

help oversee those operations. Section 

380.2 of the Proposed Rule addresses 

the treatment of these employees. 

To achieve these goals, the FDIC is 

given broad authority under the DoddFrank Act to operate or liquidate the 

business, sell the assets, and resolve the 

liabilities of a covered financial 

company immediately after its 

appointment as receiver or as soon as 

conditions make this appropriate. This 

authority will enable the FDIC to act 

immediately to sell assets of the covered 

financial company to another entity or, 

if that is not possible, to an FDICcreated bridge financial company while 

maintaining critical functions. In 

receiverships of insured depository 

institutions, the ability to act quickly 

and decisively has been found to reduce 

losses to the deposit insurance funds 

while maintaining key banking services 

for depositors and businesses, and it is 

expected to be equally crucial in 

resolving non-bank financial firms 

under the Dodd-Frank Act. 

A vital element in a prompt sale to 

other private sector companies or the 

continuation of essential operations in 

the bridge financial company is the 

availability of funding for those 

operations. The liquidity available 

under the Dodd-Frank Act will allow 

both sales at better value and a more 

orderly liquidation. The Act provides 

that the FDIC may borrow funds from 

the Department of the Treasury to 

provide liquidity for the operations of 

the receivership and the bridge financial 

company. See sections 204(d) and 

210(n). The bridge financial company 

also can access debtor-in-possession 

financing as needed. Once the new 

bridge financial company’s operations 

have stabilized as the market recognizes 

that it has adequate funding and will 

continue key operations, the FDIC 

would move as expeditiously as 

possible to sell operations and assets 

back into the private sector. 

Extensive pre-planning is essential for 

the effective use of these powers. 

Advance planning will improve the 

likelihood that the assets or operations 

of a failed financial company can be 

sold immediately or shortly after 

creation of the bridge financial company 

to other private sector companies. This 

should be an expected product of the 

advance planning mandates of the 

Dodd-Frank Act. Those mandates will 

require both regulators and senior 

management of large, complex financial 

companies to focus more intently on 

enhancing the resiliency and 

resolvability of the companies’ 

operations. This, in turn, will improve 

the efficiency and speed at which those 

operations can be transferred to other 

private companies and both greatly 

enhance the effectiveness of crisis 

management and reduce the extent of 

governmental intervention in the 

resolution of any future crisis. 

Such advance planning, a welldeveloped resolution plan, and access to 

the supporting information needed to 

undertake such planning has been a 

critical component of the FDIC’s ability 

to smoothly resolve failing banks. This 

critical issue is addressed in the DoddFrank Act in provisions that grant the 

FDIC back-up examination authority 

and require the largest companies to 

submit so-called ‘‘living wills’’ or 

resolution plans that will facilitate a 

rapid and orderly resolution of the 

company under the Bankruptcy Code. 

See section 165(d). An essential part of 

such plans will be to describe how this 

process can be accomplished without 

posing systemic risk to the public and 

the financial system. If the company 

cannot submit a credible resolution 

plan, the statute permits the FDIC and 

the Federal Reserve to jointly impose 

increasingly stringent requirements that, 

ultimately, can lead to divestiture of 

assets or operations identified by the 

FDIC and the Federal Reserve to 

facilitate an orderly resolution. The 

FDIC and the Federal Reserve will 

jointly adopt a rule to implement the 

resolution plan requirements of the 

Dodd-Frank Act. The availability of 

adequate information and the 

establishment of feasible resolution 

plans are all the more critical because 

the largest covered financial companies 

operate globally and their liquidation 

will necessarily involve coordination 

among regulators around the world. 

To strengthen the foundation for 

effective resolutions, the FDIC also will 

promulgate other rules and provide 

additional guidance in consultation 

with the members of the Financial 


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Stability Oversight Council to ensure a 

credible liquidation process that realizes 

the goal of ending ‘‘too big to fail’’ while 

enhancing market discipline. 

This highlights another key 

component of preparedness: the 

necessity of advance planning with 

other potentially affected regulators 

internationally. The Dodd-Frank Act’s 

framework for an orderly liquidation 

provides the United States with the vital 

elements to prevent contagion in any 

future crisis, while closing the firms and 

making the creditors and shareholders 

bear the losses. For this process to work 

most efficiently, however, it is essential 

that legal and policy reforms are 

adopted in key foreign jurisdictions so 

that the cross-border operations of the 

covered financial company can be 

liquidated consistently, cooperatively, 

and in a manner that maximizes their 

value and minimizes the costs and 

negative effects on the financial system. 

The key reforms involve recognition in 

the foreign legal and regulatory systems 

where the FDIC would control the 

company’s assets and operations; and 

that the FDIC would have the authority, 

subject to appropriate assurances that 

the FDIC will meet ongoing 

commitments, to continue the covered 

financial company’s operations to 

facilitate an orderly wind-down of the 

company. Through the framework 

provided by the Dodd-Frank Act, the 

FDIC is working to facilitate these 

reforms and is engaged with foreign 

regulators in the work required to 

improve cooperation and ensure a much 

better process is implemented in any 

future liquidation involving a crossborder company. 

II. The Proposed Rule 

Section 209 of the Dodd-Frank Act 

authorizes the FDIC, in consultation 

with the Financial Stability Oversight 

Council, to prescribe such rules and 

regulations as the FDIC considers 

necessary or appropriate to implement 

Title II. Section 209 also provides that, 

to the extent possible, the FDIC shall 

seek to harmonize such rules and 

regulations with the insolvency laws 

that would otherwise apply to a covered 

financial company. The purpose of the 

Proposed Rule is to provide guidance on 

certain key issues in order to provide 

clarity and certainty to the financial 

industry and to ensure that the 

liquidation process under Title II 

reflects the Dodd-Frank Act’s mandate 

of transparency in the liquidation of 

failing systemic financial companies. In 

this notice of proposed rulemaking, the 

FDIC also is posing broad and specific 

questions to solicit public comment on 

potential additional issues that may 

require clarification in a broader notice 

of proposed rulemaking in the future. 

The Proposed Rule addresses discrete 

issues within the following broad areas: 

(1) The priority of payment to 

creditors (by defining categories of 

creditors who shall not receive any 

additional payments under section 

210(b)(4), (d)(4), and (h)(5)(E)); 

(2) The authority to continue 

operations by paying for services 

provided by employees and others (by 

clarifying the payment for services 

rendered under personal services 

contracts); 

(3) The treatment of creditors (by 

clarifying the measure of damages for 

contingent claims); and 

(4) The application of proceeds from 

the liquidation of subsidiaries (by 

reiterating the current treatment under 

corporate and insolvency law that 

remaining shareholder value is paid to 

the shareholders of any subsidiary). 

Section-by-Section Analysis 

Definitions. Section 380.1 of the 

Proposed Rule provides that the terms 

‘‘bridge financial company,’’ 

‘‘Corporation,’’ ‘‘covered financial 

company,’’ ‘‘covered subsidiary,’’ 

‘‘insurance company,’’ and ‘‘subsidiary’’ 

would have the same meanings as in the 

Dodd-Frank Act. 

Treatment of Similarly Situated 

Creditors. The Dodd-Frank Act permits 

the FDIC to pay certain creditors of a 

receivership more than similarly 

situated creditors if it is necessary to: (1) 

‘‘Maximize the value of the assets’’; (2) 

initiate and continue operations 

‘‘essential to implementation of the 

receivership and any bridge financial 

company’’; (3) ‘‘maximize the present 

value return from the sale or other 

disposition of the assets’’; or (4) 

‘‘minimize the amount of any loss’’ on 

sale or other disposition. The 

appropriate comparison for any 

additional payments received by some, 

but not all, creditors similarly situated 

is the amount that the creditors should 

have received under the priority of 

expenses and unsecured claims defined 

in Section 210(b) and other applicable 

law. In addition, the Dodd-Frank Act 

requires that all creditors of a class must 

receive no less than what they would 

have received in a case under Chapter 

7 of the Bankruptcy Code. See section 

210(d)(2)(B). 

These provisions parallel authority 

the FDIC has long had under the Federal 

Deposit Insurance Act to continue 

operations after the closing of failed 

insured banks if necessary to maximize 

the value of the assets in order to 

achieve the ‘‘least costly’’ resolution or 

to prevent ‘‘serious adverse effects on 

economic conditions or financial 

stability.’’ 12 U.S.C. 1821(d) and 1823(c). 

As is well illustrated by comparisons 

with some liquidations under the 

Bankruptcy Code, the inability to 

continue potentially valuable business 

operations can seriously impair the 

recoveries of creditors and increase the 

costs of the insolvency. In bank 

resolutions under the ‘‘least costly’’ 

requirement of the Federal Deposit 

Insurance Act, many institutions 

purchasing failed bank operations have 

paid a premium to acquire all deposits 

because of the recognized value 

attributable to acquiring ongoing 

depositor relationships. In those cases, 

the sale of all deposits to the acquiring 

institutions has maximized recoveries 

and minimized losses consistent with 

the ‘‘least costly’’ requirement. 

The ability to maintain essential 

operations under the Dodd-Frank Act 

would be expected to similarly 

minimize losses and maximize 

recoveries in any liquidation, while 

avoiding a disorderly collapse. 

Examples of operations that may be 

essential to the implementation of the 

receivership or a bridge financial 

company include the payment of utility 

and other service contracts and 

contracts with companies that provide 

payments processing services. These 

and other contracts will allow the bridge 

company to preserve and maximize the 

value of the bridge financial company’s 

assets and operations to the benefit of 

creditors, while preventing a disorderly 

and more costly collapse. 

To clarify the application of these 

provisions and to ensure that certain 

categories of creditors cannot expect 

additional payments, § 380.2 of the 

Proposed Rule would define certain 

categories of creditors who never satisfy 

this requirement. Specifically, this 

section would put creditors of a 

potential covered financial company on 

notice that bond holders of such an 

entity that hold certain unsecured 

senior debt with a term of more than 

360 days will not receive additional 

payments compared to other general 

creditors such as general trade creditors 

or any general or senior liability of the 

covered financial company, nor will 

exceptions be made for favorable 

treatment of holders of subordinated 

debt, shareholders or other equity 

holders. The rule focuses on long-term 

unsecured senior debt (i.e., debt 

maturing more than 360 days after 

issuance) in order to distinguish 

bondholders from commercial lenders 

or other providers of financing who 

have made lines of credit available to 

the covered financial company that are 


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5 In this regard, the Proposed Rule is consistent 

with the Federal Deposit Insurance Act regarding 

the treatment of personal service contracts (see 12 

U.S.C. 1821(e)(7)). 

6Section 213(d) of the Dodd-Frank Act requires 

the FDIC and the Board of Governors of the Federal 

Reserve System, after consultation with the 

Financial Stability Oversight Council, to prescribe, 

inter alia, ‘‘rules, regulations, or guidelines to 

further define the term ‘‘senior executive’’ for the 

purposes of that section, relating to the imposition 

of prohibitions on the participation of certain 

persons in the conduct of the affairs of a financial 

company. In the future, the FDIC would expect to 

conform the definition of ‘‘senior executive’’ in 

§ 380.1 of the Proposed Rule to the definition that 

is adopted in the regulation that is adopted 

pursuant to section 213(d). 

essential for its continued operation and 

orderly liquidation. 

The treatment of long-term unsecured 

senior debt under the Proposed Rule is 

consistent with the existing treatment of 

such debt in bank receiverships. The 

FDIC has long had the authority to make 

additional payments to certain creditors 

after the closing of an insured bank 

under the Federal Deposit Insurance 

Act, 12 U.S.C. 1821(i)(3), where it will 

maximize recoveries and is consistent 

with the ‘‘least costly’’ resolution 

requirement or is necessary to prevent 

‘‘serious adverse effects on economic 

conditions or financial stability.’’ 12 

U.S.C. 1821(d) and 1823(c). In applying 

this authority, the FDIC has not made 

additional payments to shareholders, 

subordinated debt, or long-term senior 

debt holders of banks placed into 

receivership because such payments 

would not have helped maximize 

recoveries or contribute to the orderly 

liquidation of the failed banks. This 

experience supports the conclusion that 

the Proposed Rule appropriately 

clarifies that shareholders, subordinated 

debt, or long-term senior debt holders of 

future non-bank financial institutions 

resolved under the Dodd-Frank Act 

should never receive additional 

payments under the authority of 

Sections 210(b)(4), (d)(4), or (h)(5)(E). 

While the Proposed Rule would 

distinguish between long-term 

unsecured senior debt and shorter term 

unsecured debt, this distinction does 

not mean that shorter term debt will be 

provided with additional payments 

under sections 210(b)(4), (d)(4) or 

(h)(5)(E) of the Dodd-Frank Act. As 

general creditors, such debt holders 

normally will receive the amount 

established and due under section 

210(b)(1), or other priorities of payment 

specified by law. While they may 

receive additional payments under the 

Proposed Rule, this will be evaluated on 

a case-by-case basis and will only occur 

when such payments meet all of the 

statutory requirements. 

A major driver of the financial crisis 

and the panic experienced by the 

market in 2008 was in part due to an 

overreliance by many market 

participants on funding through shortterm, secured transactions in the 

repurchase agreement market using 

volatile, illiquid collateral, such as 

mortgage-backed securities. In applying 

its powers under the Dodd-Frank Act, 

the FDIC must exercise a great deal of 

caution in valuing such collateral and 

will review the transaction to ensure it 

is not under-collateralized. Under 

applicable law, if the creditor is undersecured due to a drop in the value of 

such collateral, the unsecured portion of 

the claim will be paid as a general 

creditor claim. In contrast, if the 

collateral consists of U.S. Treasury 

securities or other government securities 

as collateral, the FDIC will value these 

obligations at par. 

This provision must also be 

considered in concert with the express 

provisions of section 203(c)(3)(A)(vi). 

This subsection requires a report to 

Congress not later than 60 days after 

appointment of the FDIC as receiver for 

a covered financial company specifying 

‘‘the identity of any claimant that is 

treated in a manner different from other 

similarly situated claimants,’’ the 

amount of any payments and the reason 

for such action. In addition, the FDIC 

must post this information on a Web site 

maintained by the FDIC. These reports 

must be updated ‘‘on a timely basis’’ and 

no less frequently than quarterly. This 

information will provide other creditors 

with full information about such 

payments in a timely fashion that will 

permit them to file a claim asserting any 

challenges to the payments. The DoddFrank Act also includes the power to 

‘‘claw-back’’ or recoup some or all of any 

additional payments made to creditors if 

the proceeds of the sale of the covered 

financial company’s assets are 

insufficient to repay any monies drawn 

by the FDIC from Treasury during the 

liquidation. 12 U.S.C. 5390(o)(1)(D). 

This provision underscores the 

importance of a strict application of the 

authority provided in sections 210(b)(4), 

(d)(4), and (h)(5)(E) of the Dodd-Frank 

Act and will help ensure that if there is 

any shortfall in proceeds of sale of the 

assets the institution’s creditors will be 

assessed before the industry as a whole. 

Most importantly, under no 

circumstances in a Dodd-Frank 

liquidation will taxpayers ever be 

exposed to loss. 

The Proposed Rule would expressly 

distinguish between ongoing credit 

relationships with lenders who have 

provided lines of credit that are 

necessary for maintaining ongoing 

operations. Under section 210(c)(13)(D) 

of the Dodd-Frank Act, the FDIC can 

enforce lines of credit to the covered 

financial company and agree to repay 

the lender under the credit agreement. 

In some cases such lines of credit may 

be an integral part of key operations and 

be essential to help the FDIC maximize 

the value of the failed company’s assets 

and operations. In such cases, it may be 

more efficient to continue such lines of 

credit and, if appropriate, reduce the 

demands for funding from the Orderly 

Liquidation Fund. 

Personal Services Agreements. 

Section 380.3 of the Proposed Rule 

concerns personal services agreements, 

which would include, without 

limitation, collective bargaining 

agreements. Like other contracts with 

the covered financial company, a 

personal services agreement would be 

subject to repudiation by the receiver if 

the agreement is determined to be 

burdensome and its repudiation would 

promote the orderly liquidation of the 

company. Prior to determining whether 

to repudiate, however, the FDIC as 

receiver may need to utilize the services 

of employees who have a personal 

services agreement with the covered 

financial company. The Proposed Rule 

would provide that if the FDIC accepts 

services from employees during the 

receivership or any period where some 

or all of the operations of the covered 

financial company are continued by a 

bridge financial company, those 

employees would be paid according to 

the terms and conditions of their 

personal service agreement and such 

payments would be treated as an 

administrative expense of the receiver. 

The acceptance of services from the 

employees by the FDIC as receiver (or 

by a bridge financial company) would 

not impair the receiver’s ability 

subsequently to repudiate a personal 

services agreement.5 The Proposed Rule 

also would make clear that a personal 

service agreement would not continue 

to apply to employees in connection 

with a sale or transfer of a subsidiary or 

the transfer of certain operations or 

assets of the covered financial company 

unless the acquiring party expressly 

agrees to assume the personal service 

agreement. Likewise, the transfer would 

not be predicated on such assumption. 

Subparagraph (e) of § 380.3 would make 

clear that the provision for payment of 

employees would not apply to senior 

executives or directors of the covered 

financial company,6 nor would it impair 

the ability of the receiver to recover 

compensation previously paid to senior 

executives or directors under section 

210(s) of the Dodd-Frank Act. The 

definition of ‘‘senior executive’’ in this 

section substantially follows the 


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definition of ‘‘executive officer’’ in 

Regulation O of the Board of Governors 

of the Federal Reserve System (12 CFR 

215.2). This definition is commonly 

understood and accepted. 

Contingent Obligations. Section 380.4 

of the Proposed Rule would recognize 

that contingent obligations are provable 

under the Dodd-Frank Act. See section 

201(a)(4), defining the term ‘‘claim’’ to 

include a right of payment that is 

contingent, and section 210(c)(3)(E), 

providing for damages for repudiation of 

a contingent obligation in the form of a 

guarantee, letter of credit, loan 

commitment, or similar credit 

obligation. The Proposed Rule would 

apply to contingent obligations 

consisting of a guarantee, letter of credit, 

loan commitment, or similar credit 

obligation that becomes due and 

payable upon the occurrence of a 

specified future event. For an obligation 

to be considered contingent, the future 

event (i) cannot occur by the mere 

passage of time (i.e., the arrival of a 

certain date on the calendar); (ii) cannot 

be made to occur (or not) by either 

party; and (iii) cannot have occurred as 

of the date of the appointment of the 

receiver. In addition, the FDIC holds the 

view that an obligation in the form of a 

guarantee or letter of credit is no longer 

contingent if the principal obligor (i.e., 

the party whose obligation is backed by 

the guarantee or letter of credit) 

becomes insolvent or is the subject of 

insolvency proceedings. 

Paragraph (b) of § 380.4 would 

recognize that contingent claims may be 

provable against the receiver. Thus, for 

example, where a guarantee or letter of 

credit becomes due and payable after 

the appointment of the receiver, the 

receiver will not disallow a claim solely 

because the obligation was contingent as 

of the date of the appointment of the 

receiver. 

Paragraph (c) of § 380.4 would 

implement section 210(c)(3)(E), which 

authorizes the FDIC to promulgate rules 

and regulations providing that damages 

for repudiation of a contingent 

guarantee, letter of credit, loan 

commitment, or similar credit obligation 

shall be measured based upon the 

likelihood that such contingent 

obligation would become fixed and the 

probable magnitude of the claim. 

Insurance Company Subsidiaries. 

Section 380.5 of the Proposed Rule 

would provide that where the FDIC acts 

as receiver for a direct or indirect 

subsidiary of an insurance company that 

is not an insured depository institution 

or an insurance company itself, the 

value realized from the liquidation or 

other resolution of the subsidiary will 

be distributed according to the priority 

of expenses and unsecured claims set 

forth in section 210(b)(1) of the DoddFrank Act. In order to clarify that such 

value will be available to the 

policyholders of the parent insurance 

company to the extent required by the 

applicable State laws and regulations, 

the Proposed Rule would expressly 

recognize the requirement that the 

receiver remit all proceeds due to the 

parent insurance company in 

accordance with the order of priority set 

forth in section 210(b)(1). 

Liens on Insurance Company Assets. 

Section 380.6 of the Proposed Rule 

would limit the ability of the FDIC to 

take liens on insurance company assets 

and assets of the insurance company’s 

covered subsidiaries, under certain 

circumstances after the FDIC has been 

appointed receiver. Section 204 of the 

Dodd-Frank Act permits the FDIC to 

provide funding for the orderly 

liquidation of covered financial 

companies and covered subsidiaries that 

the FDIC determines, in its discretion, 

are necessary or appropriate by, among 

other things, making loans, acquiring 

debt, purchasing assets or guaranteeing 

them against loss, assuming or 

guaranteeing obligations, making 

payments, or entering into certain 

transactions. In particular, pursuant to 

section 204(d)(4), the FDIC is authorized 

to take liens ‘‘on any or all assets of the 

covered financial company or any 

covered subsidiary, including a first 

priority lien on all unencumbered assets 

of the covered financial company or any 

covered subsidiary to secure repayment 

of any transactions conducted under 

this subsection.’’ 

Section 203(e) provides that, in 

general, if an insurance company is a 

covered financial company the 

liquidation or rehabilitation of such 

insurance company shall be conducted 

as provided under the laws and 

requirements of the State, either by the 

appropriate State regulatory agency, or 

by the FDIC if such regulatory agency 

has not filed the appropriate judicial 

action in the appropriate State court 

within sixty (60) days of the date of the 

determination that such insurance 

company satisfied the requirements for 

appointment of a receiver under section 

202(a). However, a subsidiary or affiliate 

(including a parent entity) of an 

insurance company, where such 

subsidiary or affiliate is not itself an 

insurance company, will be subject to 

orderly liquidation under Title II 

without regard to State law. 

The FDIC recognizes that the orderly 

liquidation of a covered financial 

company that is a covered subsidiary of, 

or an affiliate of, an insurance company 

should not unnecessarily interfere with 

the liquidation or rehabilitation of the 

insurance company under applicable 

State law, and that the interests of the 

policy holders in the assets of the 

insurance company should be 

respected. Accordingly, the FDIC is 

proposing that it will avoid taking a lien 

on some or all of the assets of a covered 

financial company that is an insurance 

company or a covered subsidiary or 

affiliate of an insurance company unless 

it makes a determination, in its sole 

discretion, that taking such a lien is 

necessary for the orderly liquidation of 

the company (or subsidiary or affiliate) 

and will not unduly impede or delay the 

liquidation or rehabilitation of such 

insurance company, or the recoveries by 

its policyholders. Subsection (b) of 

§ 380.6 makes clear that no restriction 

on taking a lien on assets of a covered 

financial company or any covered 

subsidiary or affiliate would limit or 

restrict the ability of the FDIC or the 

receiver to take a lien on such assets in 

connection with the sale of such entities 

or any of their assets on a financed basis 

to secure any financing being provided 

in connection with such sale. 

IV. Request for Comments 

The FDIC requests comments on all 

aspects of the Proposed Rule. All 

comments and responses to the 

following questions on the Proposed 

Rule must be received by the FDIC not 

later than November 18, 2010. The FDIC 

specifically requests comments on the 

following specific questions: 

1. Should ‘‘long-term senior debt’’ be 

defined in reference to a specific term, 

such as 270 or 360 days or some 

different term, or should it be defined 

through a functional definition? 

2. Is the description of ‘‘partially 

funded, revolving or other open lines of 

credit’’ adequately descriptive? Is there 

a more effective definition that could be 

used? If so, what and how is it more 

effective? 

3. Should there be further limits to 

additional payments or credit amounts 

that can be provided to shorter term 

general creditors? Are there further 

limits that should be applied to ensure 

that any such payments maximize 

value, minimize losses, or are to initiate 

and continue operations essential to the 

implementation of the receivership or 

any bridge financial company? If so, 

what limits should be applied 

consistent with other applicable 

provisions of law? 

4. Under the Proposed Rule, the 

FDIC’s Board of Directors must 

determine to make additional payments 

or credit amounts available to shorter 

term general creditors only if such 

payments or credits meet the standards 


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64180 Federal Register / Vol. 75, No. 201 / Tuesday, October 19, 2010 / Proposed Rules 

specified in 12 U.S.C. 5390(b)(4), (d)(4), 

and (h)(5)(E). Should additional 

requirements be imposed on this 

decision-making process for the Board? 

Should a super-majority be required? 

5. Under the Dodd-Frank Act, secured 

creditors will be paid in full up to the 

extent of the pledged collateral and the 

proposed rule specifies that direct 

obligations of, or that are fully 

guaranteed by, the United States or any 

agency of the United States shall be 

valued for such purposes at par value. 

How should other collateral be valued 

in determining whether a creditor is 

fully secured or partially secured? 

6. During periods of market 

disruption, the liquidation value of 

collateral may decline precipitously. 

Since creditors are normally held to a 

duty of commercially reasonable 

disposition of collateral [Uniform 

Commercial Code], should the FDIC 

adopt a rule governing valuation of 

collateral other than United States or 

agency collateral? Would a valuation 

based on a rolling average prices, 

weighted by the volume of sales during 

the month preceding the appointment of 

the receiver, provide more certainty to 

valuation of other collateral? Would that 

help reduce the incentives to quickly 

liquidate collateral in a crisis? 

7. Are changes necessary to the 

provisions of proposed Section 380.3 

through 380.6? What other specific 

issues addressed in these sections 

should be addressed in the proposed 

rule or in future proposed rules? 

In addition, the FDIC specifically 

requests responses to the following 

questions. Written responses to the 

specific questions posed by the FDIC 

must be received by the FDIC not later 

than January 18, 2011. 

1. What other specific areas relating to 

the FDIC’s orderly liquidation authority 

under Title II would benefit from 

additional rulemaking? 

2. Section 209 of the Dodd-Frank Act 

requires the FDIC, ‘‘[t]o the extent 

possible,’’ ‘‘to harmonize applicable 

rules and regulations promulgated 

under this section with the insolvency 

laws that would otherwise apply to a 

covered financial company.’’ What are 

the key areas of Title II that may require 

additional rules or regulations in order 

to harmonize them with otherwise 

applicable insolvency laws? In your 

answer, please specify the source of 

insolvency laws to which you are 

making reference. 

3. With the exception of the special 

provisions governing the liquidation of 

covered brokers and dealers (see section 

205), are there different types of covered 

financial companies that require 

different rules and regulations in the 

application of the FDIC’s powers and 

duties? 

4. Section 210 specifies the powers 

and duties of the FDIC acting as receiver 

under Title II. Are regulations necessary 

to define how these specific powers 

should be applied in the liquidation of 

a covered company? 

5. Should the FDIC adopt regulations 

to define how claims against the 

covered financial company and the 

receiver are determined under section 

210(a)(2)? What specific elements of this 

process require clarification? 

6. Should the FDIC adopt regulations 

governing the avoidable transfer 

provisions of section 210(a)(11)? What 

are the most important issues to address 

for the fraudulent transfer provisions? 

What are the most important issues to 

address for the preferential transfers 

provisions? How should these issues be 

addressed? 

7. What are the key issues that should 

be addressed to clarify the application 

of the setoff provisions in section 

210(a)(12)? How should these issues be 

addressed? 

8. Do the provisions governing the 

priority of payments of expenses and 

claims in section 210(b) and other 

sections require clarification? If so, what 

are the key issues to clarify in any 

regulation? 

9. Section 210(b)(4), (d)(4), and 

(h)(5)(E) address potential payments to 

creditors ‘‘similarly situated’’ that are 

addressed in this Proposed Rule. Are 

there additional issues on the 

application of this provision, or related 

provisions, that require clarification in a 

regulation? 

10. Section 210(h) provides the FDIC 

with authority to charter a bridge 

financial company to facilitate the 

liquidation of a covered financial 

company. What issues surrounding the 

chartering, operation, and termination 

of a bridge company would benefit from 

a regulation? How should those issues 

be addressed? 

11. Regarding actual direct 

compensatory damages for the 

repudiation of a contingent obligation in 

the form of a guarantee, letter of credit, 

loan commitment, or similar credit 

obligation, should the Proposed Rule be 

amended to specifically provide a 

method for determining the estimated 

value of the claim? In addition to the 

statutory considerations in valuation, 

including the likelihood that the 

contingent claim would become fixed 

and its probable magnitude, what other 

factors are appropriate? If so, what 

methods for determining such estimated 

value would be appropriate? Should the 

regulation provide more detail on when 

a claim is contingent? 

12. Are the provisions of the DoddFrank Act relating to the classification 

of claims as administrative expenses of 

the receiver sufficiently clear, or is 

additional rulemaking necessary to 

clarify such classification? 

13. Should the Proposed Rule’s 

definition of ‘‘long-term senior debt’’ be 

clarified or amended? 

V. Regulatory Analysis and Procedure 

A. Paperwork Reduction Act 

The Proposed Rule would establish 

internal rules and procedures for the 

liquidation of a failed systemically 

important financial company. It would 

not involve any new collections of 

information pursuant to the Paperwork 

Reduction Act (44 U.S.C. 3501 et seq.). 

Consequently, no information collection 

has been submitted to the Office of 

Management and Budget for review. 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

requires an agency that is issuing a final 

rule to prepare and make available a 

regulatory flexibility analysis that 

describes the impact of the final rule on 

small entities. (5 U.S.C. 603(a)). The 

Regulatory Flexibility Act provides that 

an agency is not required to prepare and 

publish a regulatory flexibility analysis 

if the agency certifies that the final rule 

will not have a significant impact on a 

substantial number of small entities. 

Pursuant to section 605(b) of the 

Regulatory Flexibility Act, the FDIC 

certifies that the Proposed Rule will not 

have a significant impact on a 

substantial number of small entities. 

The Proposed Rule would clarify rules 

and procedures for the liquidation of a 

failed systemically important financial 

company, which will provide internal 

guidance to FDIC personnel performing 

the liquidation of such a company and 

will address any uncertainty in the 

financial system as to how the orderly 

liquidation of such a company would 

operate. As such, the Proposed Rule 

would not impose a regulatory burden 

on entities of any size and does not 

significantly impact small entities. 

C. The Treasury and General 

Government Appropriations Act, 1999— 

Assessment of Federal Regulations and 

Policies on Families 

The FDIC has determined that the 

Proposed Rule will not affect family 

well-being within the meaning of 

section 654 of the Treasury and General 

Government Appropriations Act, 

enacted as part of the Omnibus 

Consolidated and Emergency 

Supplemental Appropriations Act of 

1999 (Pub. L. 105–277, 112 Stat. 2681). 


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E. Plain Language 

Section 722 of the Gramm-LeachBliley Act (Pub. L. 106–102, 113 Stat. 

1338, 1471), requires the Federal 

banking agencies to use plain language 

in all proposed and final rules 

published after January 1, 2000. The 

FDIC has sought to present the Proposed 

Rule in a simple and straightforward 

manner. The FDIC invites comments on 

whether the Proposed Rule is clearly 

stated and effectively organized and 

how the FDIC might make the final rule 

on this subject matter easier to 

understand. 

List of Subjects in 12 CFR Part 380 

Holding companies, Insurance 

companies. 

For the reasons stated above, the 

Board of Directors of the Federal 

Deposit Insurance Corporation proposes 

to amend title 12 of the Code of Federal 

Regulations by adding new part 380 to 

read as follows: 

PART 380—ORDERLY LIQUIDATION 

AUTHORITY 

Sec. 

380.1 Definitions. 

380.2 Treatment of similarly situated 

claimants. 

380.3 Treatment of personal service 

agreements. 

380.4 Provability of claims based on 

contingent obligations. 

380.5 Treatment of covered financial 

companies that are subsidiaries of 

insurance companies. 

380.6 Limitation on liens on assets of 

covered financial companies that are 

insurance companies or covered 

subsidiaries of insurance companies. 

Authority: 12 U.S.C. 5301 et seq. 

§ 380.1 Definitions. 

As used in this part, the terms ‘‘bridge 

financial company,’’ ‘‘Corporation,’’ 

‘‘covered financial company,’’ ‘‘covered 

subsidiary,’’ ‘‘insurance company,’’ and 

‘‘subsidiary’’ have the same meanings as 

in the Dodd-Frank Wall Street Reform 

and Consumer Protection Act (12 U.S.C. 

5301 et seq.). 

§ 380.2 Treatment of similarly situated 

claimants. 

(a) For the purposes of this section, 

the term ‘‘long-term senior debt’’ means 

senior debt issued by the covered 

financial company to bondholders or 

other creditors that has a term of more 

than 360 days. It does not include 

partially funded, revolving or other 

open lines of credit that are necessary to 

continuing operations essential to the 

receivership or any bridge financial 

company, nor to any contracts to extend 

credit enforced by the receiver under 12 

U.S.C. 5390(c)(13)(D). 

(b) In applying any provision of the 

Act permitting the Corporation to 

exercise its discretion, upon appropriate 

determination, to make payments or 

credit amounts, pursuant to 12 U.S.C. 

5390(b)(4), (d)(4), or (h)(5)(E) to or for 

some creditors but not others similarly 

situated at the same level of payment 

priority, the Corporation shall not 

exercise such authority in a manner that 

would result in the following recovering 

more than the amount established and 

due under 12 U.S.C. 5390(b)(1), or other 

priorities of payment specified by law: 

(1) Holders of long-term senior debt 

who have a claim entitled to priority of 

payment at the level set out under 12 

U.S.C. 5390(b)(1)(E); 

(2) Holders of subordinated debt who 

have a claim entitled to priority of 

payment at the level set out under 12 

U.S.C. 5390(b)(1)(F); 

(3) Shareholders, members, general 

partners, limited partners, or other 

persons who have a claim entitled to 

priority of payment at the level set out 

under 12 U.S.C. 5390(b)(1)(H); or 

(4) Other holders of claims entitled to 

priority of payment at the level set out 

under 12 U.S.C. 5390(b)(1)(E) unless the 

Corporation, through a vote of the 

members of the Board of Directors then 

serving and in its sole discretion, 

specifically determines that additional 

payments or credit amounts to such 

holders are necessary and meet all of the 

requirements under 12 U.S.C. 

5390(b)(4), (d)(4), or (h)(5)(E), as 

applicable. The authority of the Board to 

make the foregoing determination 

cannot be delegated. 

(c) Proven claims secured by a legally 

valid and enforceable or perfected 

security interest or security entitlement 

in any property or other assets of the 

covered financial company shall be paid 

or satisfied in full to the extent of such 

collateral, but any portion of such claim 

which exceeds an amount equal to the 

fair market value of such property or 

other assets shall be treated as an 

unsecured claim and paid in accordance 

with the priorities established in 12 

U.S.C. 5390(b) and otherwise applicable 

provisions. Proven claims secured by 

such security interests or security 

entitlements in securities that are direct 

obligations of, or that are fully 

guaranteed by, the United States or any 

agency of the United States shall be 

valued for such purposes at par value. 

§ 380.3 Treatment of personal service 

agreements. 

(a) Definitions. (1) The term ‘‘personal 

service agreement’’ means a written 

agreement between an employee and a 

covered financial company, covered 

subsidiary or a bridge financial 

company setting forth the terms of 

employment. This term also includes an 

agreement between any group or class of 

employees and a covered financial 

company, covered subsidiary or a bridge 

financial company, including, without 

limitation, a collective bargaining 

agreement. 

(2) The term ‘‘senior executive’’ means 

for purposes of this section, any person 

who participates or has authority to 

participate (other than in the capacity of 

a director) in major policymaking 

functions of the company, whether or 

not: the person has an official title; the 

title designates the officer an assistant; 

or the person is serving without salary 

or other compensation. The chairman of 

the board, the president, every vice 

president, the secretary, and the 

treasurer or chief financial officer, 

general partner and manager of a 

company are considered executive 

officers, unless the person is excluded, 

by liquidation of the board of directors, 

the bylaws, the operating agreement or 

the partnership agreement of the 

company, from participation (other than 

in the capacity of a director) in major 

policymaking functions of the company, 

and the person does not actually 

participate therein. 

(b)(1) If before repudiation or 

disaffirmance of a personal service 

agreement, the Corporation as receiver 

of a covered financial company, or the 

Corporation as receiver of a bridge 

financial company accepts performance 

of services rendered under such 

agreement, then: 

(i) The terms and conditions of such 

agreement shall apply to the 

performance of such services; and 

(ii) Any payments for the services 

accepted by the Corporation as receiver 

shall be treated as an administrative 

expense of the receiver. 

(2) If a bridge financial company 

accepts performance of services 

rendered under such agreement, then 

the terms and conditions of such 

agreement shall apply to the 

performance of such services. 

(c) No party acquiring a covered 

financial company or any operational 

unit, subsidiary or assets thereof from 

the Corporation as receiver or from any 

bridge financial company shall be 

bound by a personal service agreement 

unless the acquiring party expressly 

assumes the personal services 

agreement. 

(d) The acceptance by the Corporation 

as receiver for a covered financial 

company, by any bridge financial 

company or the Corporation as receiver 

of a bridge financial company of 

services subject to a personal service 

agreement shall not limit or impair the 


jlentini on DSKJ8SOYB1PROD with PROPOSALS
64182 Federal Register / Vol. 75, No. 201 / Tuesday, October 19, 2010 / Proposed Rules 

authority of the Corporation as receiver 

to disaffirm or repudiate any personal 

service agreement in the manner 

provided for the disaffirmance or 

repudiation of any agreement under 12 

U.S.C. 5390. 

(e) Paragraph (b) of this section shall 

not apply to any personal service 

agreement with any senior executive or 

director of the covered financial 

company or covered subsidiary, nor 

shall it in any way limit or impair the 

ability of the receiver to recover 

compensation from any senior executive 

or director of a failed financial company 

under 12 U.S.C. 5390. 

§ 380.4 Provability of claims based on 

contingent obligations. 

(a) This section only applies to 

contingent obligations of the covered 

financial company consisting of a 

guarantee, letter of credit, loan 

commitment, or similar credit obligation 

that becomes due and payable upon the 

occurrence of a specified future event 

(other than the mere passage of time), 

which: 

(1) Is not under the control of either 

the covered financial company or the 

party to whom the obligation is owed; 

and 

(2) Has not occurred as of the date of 

the appointment of the receiver. 

(b) A claim based on a contingent 

obligation of the covered financial 

company may be provable against the 

receiver notwithstanding the obligation 

not having become due and payable as 

of the date of the appointment of the 

receiver. 

(c) If the receiver repudiates a 

guarantee, letter of credit, loan 

commitment, or similar credit obligation 

that is contingent as of the date of the 

receiver’s appointment, the actual direct 

compensatory damages for repudiation 

shall be no less than the estimated value 

of the claim as of the date the 

Corporation was appointed receiver of 

the covered financial company, as such 

value is measured based upon the 

likelihood that such contingent claim 

would become fixed and the probable 

magnitude thereof. 

§ 380.5 Treatment of covered financial 

companies that are subsidiaries of 

insurance companies. 

The Corporation shall distribute the 

value realized from the liquidation, 

transfer, sale or other disposition of the 

direct or indirect subsidiaries of an 

insurance company, that are not 

themselves insurance companies, solely 

in accordance with the order of 

priorities set forth in 12 U.S.C. 

5390(b)(1). 

§ 380.6 Limitation on liens on assets of 

covered financial companies that are 

insurance companies or covered 

subsidiaries of insurance companies. 

(a) In the event that the Corporation 

makes funds available to a covered 

financial company that is an insurance 

company or is a covered subsidiary or 

affiliate of an insurance company or 

enters into any other transaction with 

respect to such covered entity under 12 

U.S.C. 5384(d), the Corporation will 

exercise its right to take liens on some 

or all assets of such covered entities to 

secure repayment of any such 

transactions only when the Corporation, 

in its sole discretion, determines that: 

(1) Taking such lien is necessary for 

the orderly liquidation of the entity; and 

(2) Taking such lien will not either 

unduly impede or delay the liquidation 

or rehabilitation of such insurance 

company, or the recovery by its 

policyholders. 

(b) This section shall not be construed 

to restrict or impair the ability of the 

Corporation to take a lien on any or all 

of the assets of any covered financial 

company or covered subsidiary or 

affiliate in order to secure financing 

provided by the Corporation or the 

receiver in connection with the sale or 

transfer of the covered financial 

company or covered subsidiary or 

affiliate or any or all of the assets of 

such covered entity. 

Dated at Washington, DC, this 8th day of 

October, 2010. 

By order of the Board of Directors. 

Roberte E. Feldman, 

Executive Secretary, Federal Deposit 

Insurance Corporation. 

[FR Doc. 2010–26049 Filed 10–18–10; 8:45 am] 

BILLING CODE 6714–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 229, 230, 240, and 249 

[Release Nos. 33–9150, 34–63091; File No. 

S7–26–10] 

RIN 3235–AK76 

Issuer Review of Assets in Offerings of 

Asset-Backed Securities 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: We are proposing new 

requirements in order to implement 

Section 945 and a portion of Section 932 

of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act of 2010 

(the ‘‘Act’’). First, we are proposing a 

new rule under the Securities Act of 

1933 to require any issuer registering 

the offer and sale of an asset-backed 

security (‘‘ABS’’) to perform a review of 

the assets underlying the ABS. We also 

are proposing amendments to Item 1111 

of Regulation AB that would require an 

ABS issuer to disclose the nature of its 

review of the assets and the findings 

and conclusions of the issuer’s review of 

the assets. If the issuer has engaged a 

third party for purposes of reviewing the 

assets, we propose to require that the 

issuer disclose the third-party’s findings 

and conclusions. We also are proposing 

to require that an issuer or underwriter 

of an ABS offering file a new form to 

include certain disclosure relating to 

third-party due diligence providers, to 

implement Section 15E(s)(4)(A) of the 

Securities Exchange Act of 1934, a new 

provision added by Section 932 of the 

Act. 

DATES: Comments should be received on 

or before November 15, 2010. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/proposed.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number S7–26–10 on the subject line; 

or 

• Use the Federal eRulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–26–10. This file number 

should be included on the subject line 

if e-mail is used. To help us process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s Internet Web site 

(http://www.sec.gov/rules/ 

proposed.shtml). Comments are also 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. All comments received 

will be posted without change; we do 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS