fdic, subject to important creditor safeguards, to nullify the direct - and cross - default rights of counterparties can halt the disruptive, uncertainty - driven race to seize and liquidate a firm ’ s assets immediately upon its entrance into a title ii resolution. the fdic authority includes the opportunity to decide whether it wants to transfer qualified financial contracts ( qfcs ) to a bridge financial company or another solvent company during a one - day statutory stay of the contractual rights of counterparties of the firm being resolved. as i will discuss later, this authority is not without limitations, particularly in a cross - border resolution, but it is a critical tool for an effective resolution of a financial firm with complex portfolios of financial contracts. while title ii establishes a special resolution mechanism and grants the fdic powers responsive to the special challenges posed by the failure of large financial institutions, it provides only a legal framework, not an elaborated description of how these powers would be used to resolve a systemically important financial firm. moreover, the very large financial firms that are the most likely subjects of a title ii proceeding have extensive cross - border activities, and thus implicate the legal systems of other countries. thus, for orderly liquidation authority to be effective in containing too - big - to - fail concerns and supporting financial stability, the statutory provisions must be supplemented with administrative planning by the fdic and with consistent measures in other jurisdictions. when a firm is continuing operations under the reorganization provisions of chapter 11 of the bankruptcy code, or even doing so temporarily under the liquidation provisions of chapter 7, it may, without court approval, incur unsecured debts for which creditors have priority over other unsecured lenders for normal operational expenses ; with the approval of the court, the firm may also incur debt for other expenses. as explained above, repayment of some existing short - term creditors may be necessary to maintain the value of a financial firm, something not generally considered a normal operating expense of the sort for which dip financing is routinely available under current bankruptcy law. bis central bankers ’ speeches developing a clear, credible approach to resolution it is important to develop and articulate a credible approach to such a resolution proceeding, for at least two reasons. first, unless creditors and counterparties have well - grounded expectations as to how they will be treated in a resolution setting, they may need to charge a premium to compensate for the additional uncertainty associated with the disposition of their claims, which can lead to a mis

concern resiliency will remain crucial to a reform agenda directed at containing the toobig - to - fail problem. the objectives of preventing failure and of reducing systemic costs in the event failure nonetheless occurs are complementary, rather than alternative, policy aims. the most important systemic vulnerabilities that have not been subject to sufficient regulatory reforms are those created in short - term wholesale funding markets. in the recent financial crisis, severe repercussions were felt throughout the financial system as short - term wholesale lending against all but the very safest collateral froze up. although short - term wholesale funding levels at major u. s. and foreign banking firms are lower than they were at the outset of the crisis, major global banks remain significant users. high levels of such funding increase the probability of severe funding problems at, and thus the failure of, major financial firms. they also complicate the orderly resolution of major financial firms in the event of failure. 12 indeed, precisely because an effective orderly resolution mechanism provides for continued funding of certain short - term creditors to staunch potentially calamitous runs, that type of funding will not be subject to the increased market discipline resulting from the creation of a credible resolution process. this fact only strengthens the case for measures to limit the potential of short - term wholesale funding to be an accelerant of systemic problems. conclusion as i stated at the outset, i believe that creation of the orderly liquidation authority in title ii of dodd - frank, the work of the fdic in developing that authority, the international consensus on the need for similar authority in relevant jurisdictions, and the continuing dialogue with academic and policy commentators together constitute a relatively unnoticed success in the world of financial regulatory reform. this observation has come with two, probably predictable caveats. first, considerable work remains, so as to continue building and communicating a credible resolution mechanism that will allow investors, creditors, and counterparties of large financial firms to form reasonable expectations as to how a resolution would be conducted. second, while it is important to have such a mechanism as part of an overall program to confine too - big - to - fail problems, it would not be desirable to have to use it. the more desirable outcome would be for its very daniel k. tarullo ( 2013 ), “ evaluating progress in regulatory reforms to promote financial stability, ” speech delivered at the peterson institute for international economics, washington, may 3. bis central bankers ’ speeches credibility to work in concert with capital, liquidity