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Connectedness and ContagionProtecting the Financial System from Panics$
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Hal S. Scott

Print publication date: 2016

Print ISBN-13: 9780262034371

Published to MIT Press Scholarship Online: January 2017

DOI: 10.7551/mitpress/9780262034371.001.0001

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Dodd–Frank Orderly Liquidation for Nonbank SIFIs (Including Bank Holding Companies)

Dodd–Frank Orderly Liquidation for Nonbank SIFIs (Including Bank Holding Companies)

(p.205) 17 Dodd–Frank Orderly Liquidation for Nonbank SIFIs (Including Bank Holding Companies)
Connectedness and Contagion

Hal S. Scott

The MIT Press

The orderly liquidation authority (OLA) contained in Title II of the Dodd–Frank Act, created a new regime for receivership of nonbank financial companies whose failures “would have serious adverse effects on the financial stability in the United States.” As such, OLA is intended to offer regulators an alternative to bankruptcy proceedings. Once the company is under OLA, the Federal Deposit Insurance Corporation (FDIC) has broad authority to resolve the insolvent firm. The FDIC, in conjunction with the Bank of England, has stated its preference for a “single-point-of-entry” (SPOE) approach to resolving failed financial companies. Under this approach the FDIC would be appointed as receiver to the top-tier parent of the failed holding company. This chapter discusses the general design of the OLA and the SPOE strategy; total loss absorption capacity (TLAC) to assure holding company recapitalization; recapitalization of operating subsidiaries; safe harbor for derivatives counterparties facing a failing institution; cross-border cooperation of regulators in the use of the SPOE approach.

Keywords:   orderly liquidation authority, Dodd–Frank Act, receivership, financial regulation, bankruptcy, Federal Deposit Insurance Corporation, FDIC, single point of entry

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