FDIC responds: no bailout in Dodd bill

The FDIC says it wants to set the record straight: it's not going to bail anyone out. 

"Some comments in [the March 31] article, "Fight over Ending TBTF Centers on Flexibility," unfortunately reflect some misconceptions about the resolution authority proposed in the Senate bill, as well as about the Federal Deposit Insurance Corp.'s current powers in liquidating failed banks," Michael Krimminger, the FDIC's deputy to the chairman for policy, said in feeback emailed to American Banker.

"Nothing in the Senate bill would allow the FDIC to bail out a large financial firm — it simply provides for an orderly wind-down to avoid a destabilizing collapse. In fact, the bill specifically requires a liquidation of the firm where shareholders and creditors bear the losses."

He continued, "Some critics seize on language giving the FDIC some flexibility to treat "creditors similarly situated" differently if needed to maximize recoveries. This is no bailout. In fact, it tracks language now in the Federal Deposit Insurance Corp. Act — and no one argues that our bank liquidations bail out creditors. The Bankruptcy Code allows similar action to preserve assets or continue company-critical operations. The reason is simple: Assets are worth more if you continue to service them. This power is essential to maximize recoveries."

Krimminger concluded, "We now have the opportunity to end "too big to fail" by creating a liquidation process for the largest financial firms. We must ensure that the process can accomplish this goal."