Orderly Liquidation Authority Regulation - Comment Letters

From MarketsReformWiki
Jump to: navigation, search
Mcgladrey.gif


Dodd-Frank Timeline, Interim Final Rule on Orderly Liquidation Provisions, FDIC
Final Rule Issued Effective Date Comment Deadline
January 25, 2011 January 25, 2011 March 28, 2011
Dodd-Frank Timeline, Claims Process under Orderly Liquidation Authority Provisions, FDIC
Proposal Date Comment Deadline Final Rule Issue
March 23, 2011 May 23, 2011 August 15, 2011
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

Comment letters regarding the Orderly Liquidation Authority (OLA).

Contents

The Clearing House - February 18, 2011

Interim Final Rule on Orderly Liquidation Provisions, FDIC
February 18, 2011

The Clearing House provides three principles they feel should guide the FDIC in the OLA rule making process:

1. Predictable, transparent, fair and well‐integrated procedures must be established by the FDIC with respect to its OLA powers. Without unduly constraining its discretion and flexibility under OLA, the FDIC should provide a transparent framework in which it would exercise its judgment under Title II.

2. The substantive approaches and functional results pursued by the FDIC should, to the greatest extent practicable, reflect those that would apply to a covered financial company under the Bankruptcy Code and, in all cases work towards guaranteeing the Minimum Recovery.

3. The regulations adopted under Title II must reduce, or at least not enhance, the likelihood of failure; reducing moral hazard and managing systemic risk must be complementary, not conflicting, activities.

Read comment letter.png

Securities Industry and Financial Markets Association - March 2, 2011

Interim Final Rule on Orderly Liquidation Provisions, FDIC
February 24, 2011

From the comment letter:

SIFMA believes that "the new orderly liquidation authority in Title II of the Dodd-Frank Act is one of the most important tools in the U.S. regulatory toolbox. In order for this new authority to work properly, the FDIC will need to issue rules and regulations that convince the market that Title II will be exercised in a consistent, transparent and predictable manner that strikes the right balance among preserving or restoring financial stability, maximizing the value of the enterprise, minimizing shareholder and creditor losses, preserving equal treatment among similarly situated creditors and maximizing market discipline."

More specifically, SIFMA argues "that making a sharp distinction between long-term and short-term creditors could have unintended and even unforeseen adverse consequences on the market. These might include creating incentives for investors to restructure their investments to fit within the short-term category or distortions in the cost of long-term credit upward and the cost of short-term credit downward." They suggest that "At a minimum, the FDIC should limit the absolute prohibition to regulatory capital instruments."

Read comment letter.png

The Options Clearing Corporation - May 19, 2011

Claims Process under Orderly Liquidation Authority Provisions, FDIC
May 19, 2011

In their comment letter to the FDIC, OCC raises questions surrounding the treatment of QFCs (qualified financial contracts.) OCC urges the FDIC to "expressly identify in the final rule that the rule is subject to the exceptions and limitations applicable to QFCs in the statute itself. Without such an express acknowledgement, there is a risk that financial markets or courts could be misled into thinking that the FDIC intended QFCs to be subject to the claims processes articulated in the Proposed Rules."

"Accordingly, assuming that the FDIC does not intend to address the provisions applicable to QFCs with any greater specificity at this time, we respectfully suggest that the FDIC clarify expressly in the final rules that such rules are subject to the QFC exceptions as provided in Title II of the Dodd-Frank Act."

Read comment letter.png

Managed Funds Association - May 27, 2011

Claims Process under Orderly Liquidation Authority Provisions, FDIC
May 27, 2011

From the comment letter:

"The introduction of the OLA – an entirely new liquidation regime with a far more “bare bones” statute and a much less transparent process – has created and will continue to create huge uncertainty in the markets. Under these circumstances it is important that the OLA be employed sparingly and, in particular, only when doing so is essential to protect the overall financial markets. Limiting the companies that are potentially eligible for the OLA to those that are systemically important non-bank financial companies will create greater certainty, engender greater confidence in the scope of the OLA, and serve the purposes Congress had in mind when it enacted Title II of Dodd-Frank: creating an extraordinary liquidation authority to be used sparingly only in those situations when it is absolutely required to protect the country’s financial markets." Additionally, "the FDIC will engender greater confidence in the system,and the actual results of liquidations under the OLA will likely improve, if creditors with major stakes in the liquidation are permitted and encouraged to participate actively in the liquidation proceedings. We therefore encourage the FDIC to permit the formation of creditors committees, with the potential for such committees to retain counsel and other professionals to work with the FDIC as receiver, and to obtain payment of the expenses (including professional fees) of the committees out of the estate."

Read comment letter.png

SIFMA/The Clearing House - May 23, 2011

Claims Process under Orderly Liquidation Authority Provisions, FDIC
May 23, 2011

In their comment letter, SIFMA and The Clearing House present recapitalization as an option in the FDIC’s orderly resolution toolkit. They "believe that recapitalizations are likely to be more effective during a financial panic than a liquidation of financial assets or the sale of a troubled or insolvent SIFI to a third party pursuant to a traditional purchase-and-assumption agreement. We also believe they provide a credible alternative to the Hobson’s choice between a taxpayer-funded bailout and a “disorderly” liquidation or reorganization of a failed SIFI that could result in a severe destabilization or collapse of the financial system during a financial panic.Resolving SIFIs by recapitalizing the systemically important or other viable parts of their businesses should reduce the incentive of creditors to run at the first sign of trouble, while ensuring that any and all losses are ultimately borne by shareholders and creditors rather than taxpayers. As a result, it should be more effective than the liquidation of financial assets or the traditional purchase-and-assumption technique in balancing the FDIC’s duties to maximize value, minimize losses, preserve or restore financial stability and confidence in the financial system,minimize moral hazard and maximize market discipline."

Read comment letter.png

BlackRock - May 23, 2011

Claims Process under Orderly Liquidation Authority Provisions, FDIC
May 23, 2011

BlackRock's primary concerns with the proposed Incentive-based Compensation Rule and Recoupment of Compensation Rule are as follows:

  • The Incentive-based Compensation Rule should take into consideration the limited risk profile of investment advisers
  • The Recoupment of Compensation Rule would upend established corporate fiduciary duty law
  • With respect to investment advisers, the Incentive-based Compensation Rule's $1 billion and $50 billion tests should not include client assets that, due to certain accounting rules,may appear on an investment adviser's balance sheet, nor should it include goodwill or intangible assets
  • The SEC's proposed Incentive-based Compensation Rule should not apply to non-US investment advisers who are not required to be registered with the SEC
  • The Federal Reserve's proposed Incentive-based Compensation Rule should not apply to non-consolidated bank subsidiaries for which the parent institution has no control over compensation
Read comment letter.png

Independent Community Bankers of America - May 23, 2011

Claims Process under Orderly Liquidation Authority Provisions, FDIC
May 23, 2011

"ICBA believes that certain large non-bank financial companies should be subject to enhanced prudential standards including higher capital, leverage, and liquidity standards,concentration limits and contingent resolution plans. ICBA agrees that both the Two-Year Test and the subjective case-by-case method carry out the statutory mandates of the Dodd-Frank Act and at the same time, are flexible enough not to impose an unnecessary regulatory burden. Further, ICBA supports the Proposed Rule’s definition of “financial activities” to include all activities that have been, or may be, determined to be financial in nature under Section 4(k) of the Bank Holding Company Act.

ICBA suggests that the Proposed Rule i) include procedures that the FDIC as receiver will follow in claim determinations and valuations, ii) consider providing an appeals procedure for claim valuations. Otherwise, ICBA generally supports the Proposed Rule and agrees that it would provide clarity and some certainty to the financial industry."

Read comment letter.png

Investment Company Institute - May 23, 2011

Claims Process under Orderly Liquidation Authority Provisions, FDIC
May 23, 2011

From the comment letter:

With respect to the current Notice, we urge the FDIC to clarify the application – or, more accurately, the inapplicability – of certain aspects of the new proposed rule to [qualified financial products] (QFCs). The Notice and proposed rule text do not distinguish between QFCs and other secured transactions or claims. As a result, certain sections – in particular, those relating to the treatment of secured claims – would appear to apply to QFCs. As discussed below, the Dodd-Frank Act clearly excludes QFCs from the mandates that these sections of the proposed rule are intended to address, and would appear to exclude them from others. We also offer comments on a question posed in the Notice relating to the valuation of collateral.

Read comment letter.png

References

[edit] MarketsReformWiki Sponsors

McGladrey ADM Investor Services DTCC Fidessa
Personal tools
Namespaces

Variants
Actions
Navigation
John Lothian News
Special Pages
Toolbox
Share