Bair Seeks Resolution Authority Rule ‘Fairly Quickly’
Federal Deposit Insurance Corp. Chairman Sheila Bair said her agency will move quickly to create an interim rule to guide resolutions of systemically important financial companies when they are on the brink of failure.
The FDIC will release a rule “fairly quickly, and then we will use that as the vehicle to solicit more comments,” Bair said today at a roundtable discussion in Washington with regulators, academics and executives from firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co.
Bair’s agency, which acts as receiver for failed banks, was given authority to resolve non-depository firms under the Dodd- Frank financial-regulation law signed by President Barack Obama last month. Lawmakers created the authority after the bankruptcy of Lehman Brothers Holdings Inc. and near-collapse of American International Group Inc. roiled markets during the 2008 credit crisis.
The meeting -- which included Deputy Treasury Secretary Neal Wolin, Gary Gensler, the chairman of the Commodity Futures Trading Commission, and Securities and Exchange Commission Chairman Mary Schapiro -- was designed as a first step in the process of writing and implementing the rules, the FDIC said.
International Failure
As U.S. regulators create a regime for resolving complex financial companies, they will have to determine how to work with overseas authorities in winding down systemically important firms with multinational operations, Bair said at the meeting.
When such firms collapse, some assets may be held behind barriers that could make the companies difficult to dismantle. This kind of separation, known as “ring fencing,” will have to be addressed as firms and regulators develop so-called living wills for how they should be taken apart in a crisis, Bair said.
“At least in the short term, ring fencing is going to be a reality,” she said. “That is going to be the instinct to foreign regulators, and we just have to deal with that.”
Executives at the meeting said they are changing their businesses to take such jurisdictional protections into account. For example, in some cases it now makes sense to hold securities -- not cash -- as collateral against short-term loans, said Art Certosimo, executive vice president at Bank of New York-Mellon.
“Contrary to very strong belief, cash as collateral was troublesome as opposed to a benefit,” Certosimo said. “It’s not easy to segregate cash.”
Certosimo was joined at the roundtable by 10 other industry representatives, including chief risk officers Barry Zubrow of JPMorgan and Craig Broderick of Goldman Sachs, Citigroup Inc. vice chairman Hamid Biglari and representatives from Bank of America Corp., Wells Fargo & Co., BlackRock Inc. and Morgan Stanley.
To contact the reporters on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net; Rebecca Christie in Washington at rchristie4@bloomberg.net;
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