FDIC Proposed Rule: Calculation of Maximum Obligation Limitation

From MarketsReformWiki
Jump to: navigation, search
Mcgladrey.gif


Gavel.png FINAL RULE: This page refers to the proposed rulemaking on the calculation of maximum obligation limitation under the Orderly Liquidation Authority. For a summary of the final rule, click here.
Dodd-Frank Timeline, Calculation of Maximum Obligation Limitation, FDIC
Proposal Date Comment Deadline Final Rule Issue
November 25, 2011 January 24, 2012 April 23 2012

The proposed rule, which was issued jointly with the U.S. Treasury Department, and in consultation with the Financial Stability Oversight Council, would outline the calculation of the "maximum obligation limitation" ("MOL") applicable to any FDIC borrowing from Treasury for the orderly liquidation of a specific systemically important nonbank financial company or bank holding company. According to Dodd-Frank, the MOL should be:

  • an amount equal to ten percent of the total consolidated assets of the covered financial company, based on the most recent financial statement available, during the 30-day period immediately following the date of appointment of the FDIC as receiver; and
  • an amount equal to 90 percent of the fair value of the total consolidated assets of each covered financial company that are available for repayment. [1]

Under Title II, all of the assets on the books of the covered financial company would generally be available for sale and liquidation and, thereby, available as proceeds for repayment.

Contents

Background

Under Title II of the Dodd-Frank Act, the FDIC is required to establish rules regarding the orderly liquidation in case of a default of a "covered financial company," which is defined as financial company that poses significant risk to the financial stability of the United States. The Act outlines the process for the orderly liquidation of such a covered financial company following the FDIC’s appointment as receiver and provides for additional implementation of the orderly liquidation authority (OLA) by rulemaking.

Summary of the Proposed Rule

Under the proposed rule, the MOL would be calculated according to Title II of Dodd-Frank, as noted above. Additionally, the proposed rule would put a specific definition on the term "obligation," as the Act did not offer an exact definition. "Obligation" would mean:

  1. Any guarantee issued by the FDIC on behalf of each covered financial company;
  2. Any amount borrowed pursuant to Section 210(n)(5) in connection with each covered financial company; and
  3. Any other obligation with respect to a covered financial company for which the FDIC has a direct or contingent liability to pay any amount.

Related Document: Federal Register Entry


References

  1. Calculation of Maximum Obligation Limitation org=Federal Register. {{{org}}}. Retrieved on January 30, 2012.

[edit] MarketsReformWiki Sponsors

McGladrey ADM Investor Services DTCC Fidessa
Personal tools
Namespaces

Variants
Actions
Navigation
John Lothian News
Special Pages
Toolbox
Share