Failure Resolution

A task force of the Financial Regulatory Reform Initiative

John Bovenzi l Randall D. Guynn l Thomas H. Jackson

Objective

The initiative will examine the failure resolution provisions in the Dodd-Frank Act against a stated public policy objective. The preliminary objective is that such regulation should foster financial stability by identifying threats across financial markets and financial firms and taking appropriate actions to address those threats, while aligning incentives for prudent private sector risk management to protect taxpayers.

Strategic Approach

The initiative will broadly evaluate the merits of the failure resolution regime established in Title II of the Dodd-Frank Act against alternative bankruptcy structures. This will include an assessment of how different regimes ensure that no institution is “too-big-to-fail.” It will also include review of the crisis powers of the Federal Reserve Board and the Federal Deposit Insurance Corporation. Finally, it will review the initial steps taken by the FDIC in implementing Title II.

Preliminary Issues

  • Early remediation
  • Orderly Liquidation Authority
  • FDIC emergency powers
  • Federal Reserve Board emergency powers

Research Questions

  • Will the Orderly Liquidation Authority work in a real crisis?
  • Do regulators and industry fully understand the impact of moving along the spectrum from capital planning to early remediation to orderly resolution?
  • Do regulators such as the FDIC and Federal Reserve Board have the authority, flexibility, and accountability needed to respond to future crises?
  • Has the preliminary implementation of Title II achieved the goals established in the legislation; should those goals be augmented and/or changed?
  • Can bankruptcy, existing or with appropriate modifications, be thought of as a viable alternative or supplement to the Orderly Liquidation Authority?

Report

Too Big to Fail: The Path to a Solution
May 14, 2013