stanley fischer : comments on the resolution framework for banks and bank holding companies in the united states speech by mr stanley fischer, vice chair of the board of governors of the federal reserve system, at the panel discussion on resolution riksbank macroprudential conference, stockholm, 22 june 2016. * * * i am grateful to mark van der weide, barbara bouchard and mark savignac of the federal reserve board for their assistance in the preparation of these comments. i ’ m grateful to the organizers for inviting me to participate in this conference. i would like briefly to describe the legal frameworks that exist for resolving banking organizations in the united states, the steps that the federal reserve and other u. s. regulators have taken to make global systemically important banking organizations ( gsibs ) in the united states more resolvable, and a few of the criticisms of u. s. regulatory actions in this area, together with my responses to them. u. s. law provides several legal frameworks for resolving failed financial firms. in the united states, a failed depository institution is resolved by the federal deposit insurance corporation ( fdic ) using a framework created by the federal deposit insurance act. the fdic has acted as receiver for several thousand failed banks since 1934, including 465 from 2008 through 2012. most of these failed banks were relatively small community banks, and all were considerably smaller than the most systemically important firms active today. 1 while the federal deposit insurance act creates a special resolution framework for failed banks, a failed u. s. bank holding company – that is, a corporate entity that controls one or more banks – would generally be resolved under the same provisions of the u. s. bankruptcy code as would apply to other corporate debtors, such as industrial firms, in a proceeding overseen by a federal judge. during the recent crisis, fears about the systemic consequences that would follow from the bankruptcies of systemically important financial firms motivated extraordinary government actions to prevent such firms from failing. unfortunately, the fears proved well founded : the bankruptcy of lehman brothers holdings – the largest bankruptcy filing in american history – significantly exacerbated the crisis. 2 to increase the viability of the bankruptcy code as a framework for resolving failed financial firms without major systemic consequences, section 165 ( d ) of the dodd - frank wall street reform and consumer protection act of 2010 ( dodd - frank act ) requires large banking organizations to produce resolution plans, also known as living wills, demonstrating how

to some improvements in the liquidity of term money markets. but market functioning remains far from normal. in particular, although spreads between libor and comparable swap rates have receded from their recent peaks, they remain abnormally high. until the market turmoil fully abates, we run some risk in trying to draw lessons from recent experience. nonetheless, i believe experience to date has taught some lessons regarding the management of liquidity risk by market participants and the design of central bank liquidity facilities that will prove durable. liquidity risk management recent developments suggest that market participants must thoroughly reassess the marketliquidity assumptions that underlie their existing risk - management practices. the scope and duration of disruptions to market liquidity that we have experienced since last summer have greatly exceeded what market participants, prudential supervisors, and central banks thought likely or even possible. the implications are quite broad and significant. in general, in determining the appropriate size of their liquidity buffers ( their holdings of unencumbered liquid assets or their access to very stable sources of funding ), market participants must plan for the possibility of more - severe liquidity shocks. for example, originators and distributors of securitized assets need to be prepared for the possibility that the securitization markets seize up and force them to fund loans in the securitization pipeline. banks that provide liquidity backstops to the abcp markets or to other issuers of short - term liabilities need to prepare for the possibility that broad disturbances to money market liquidity force many issuers to draw upon the backstop facilities at the same time. and sponsors of abcp programs and other facilities in which short - term liabilities fund longer - term assets need to recognize that reputational concerns may induce them to purchase paper that cannot otherwise be sold or to purchase the collateral that cannot be financed. perhaps most important, market participants must reassess their assumptions about the stability of secured funding in circumstances in which the liquidity of the markets for the underlying collateral becomes impaired. that reassessment is especially important because in recent years market participants have been funding growing volumes of relatively less liquid assets though secured financings in the money markets. in the abcp markets, collateral expanded beyond short - term corporate and consumer receivables to include large amounts of paper that sivs and other " securities arbitrage " programs used to finance mortgage - backed securities, other asset - backed securities, and long - term debt issued by