Dodd-Frank Act - Title II: Orderly Liquidation (Part 1 of 2)
Title II provides for the orderly liquidation of systemically important, failing financial companies. It subjects failing systemic financial companies (i.e., covered financial companies), including brokers and/or dealers and insurance companies, to orderly liquidation, subject to a systemic risk determination involving the FDIC, FRB, and Treasury (in consultation with the President). (The SEC and the Federal Insurance Office are substituted for FDIC if the company or its largest subsidiary is a broker and/or dealer or insurance company, respectively; the FDIC is consulted in the systemic risk determination process in those cases). It provides that insurance companies, including subsidiaries of insurance companies that are themselves insurance companies, are liquidated or rehabilitated under State law, instead of FDIC receivership law as set forth in Title II. It gives FDIC backup authority if the State insurance regulator does not promptly commence the orderly liquidation process for an insurance company, but the FDIC must proceed under State law. It provides that liquidation of systemic broker/dealers is coordinated with SEC and the Securities Investor Protection Corporation under specific statutory provisions.
Title II, Orderly Liquidation covers the following areas
- Judicial review.
- Systemic risk determination.
- Orderly liquidation of covered financial companies.
- Orderly liquidation of covered brokers and dealers.
- Mandatory terms and conditions for all orderly liquidation actions.
- Directors not liable for acquiescing in appointment of receiver.
- Dismissal and exclusion of other actions.
- Rulemaking; non-conflicting law.
- Powers and duties of the Corporation.
- Miscellaneous provisions.
- Prohibition of circumvention and prevention of conflicts of interest.
- Ban on certain activities by senior executives and directors.
- Prohibition on taxpayer funding.
- Study on secured creditor haircuts.
- Study on bankruptcy process for financial and non bank financial institutions
- Study on international coordination relating to bankruptcy process for non bank financial institutions
It is the purpose of this title to provide the necessary authority to liquidate failing financial companies that pose a significant risk to the financial stability of the United States in a manner that mitigates such risk and minimizes moral hazard.
This title will be exercised so that:
- creditors and shareholders will bear the losses of the financial company;
- management responsible for the condition of the financial company will not be retained; and
- the Corporation and other appropriate agencies will take all steps necessary and appropriate to assure that all parties, including management, directors, and third parties ,having responsibility for the condition of the financial company