FDIC’s Second Notice of Proposed Rulemaking under the Orderly Liquidation Authority

Margaret E. Tahyar is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP. This post discusses a Davis Polk client memorandum by Randall Guynn and Reena Agrawal Sahni which is available here.

This Davis Polk memorandum, primarily written by Randy Guynn and Reena Agrawal Sahni, describes the FDIC’s second notice of proposed rulemaking, published on March 23, 2011, to implement its new Orderly Liquidation Authority (OLA) under Title II of the Dodd-Frank Act. The proposed rules raise significant issues in a number of areas, including the recoupment of compensation from senior executives and directors and the treatment of set off rights under OLA.

Overall, the Second NPR strikes a more balanced tone between how the FDIC will use its new authority to end taxpayer-funded bailouts of creditors and other stakeholders, while avoiding the sort of “disorderly” liquidation or reorganization under the Bankruptcy Code that could trigger a chain reaction of panic and failures that could result in a severe destabilization or collapse of the U.S. financial system. While it is too early to tell whether the Second NPR signals a permanent change in the tone of the FDIC’s rulemakings and other public statements, it is an important first step.

The complete memorandum is available here.

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