Following up on questions posed during yesterday's Banking Committee hearing on U.S. financial stability, U.S. Senator Bob Corker, R-Tenn., today sent a letter to FDIC Chairman Martin Gruenberg asking him to end favoritism for creditors when establishing rules for liquidating a failed bank. Many industry analysts believe implementation of the orderly liquidation process under Title II of the Dodd-Frank Act could protect creditors of a failing financial institution from taking losses if the debt is not issued at the holding company level.
"I urged you to achieve a process that holds creditors accountable during the liquidation of a failed financial institution," said Corker in his letter.
Full text of the letter is included below and in the attached document.
February 15, 2013
Dear Chairman Gruenberg:
I asked you yesterday about the Federal Deposit Insurance Corporation's (FDIC) approach to orderly liquidation authority (OLA). Specifically, I urged you to achieve a process that holds creditors accountable during the liquidation of a failed financial institution.
As you know, the regime you have established under Dodd Frank's Title II would wipe out the bank using a single point of entry at the holding company level. My concern is that this allows creditors to issue unsecured debt at the subsidiary level with the full knowledge that they can avoid being wiped out. I think we all agreed yesterday that this was not the intended outcome. So my question to you is the following: if you follow through with a single point of entry approach, how do we ensure that creditors at any level of the financial institution take losses?
I appreciate your swift attention to this matter and look forward to your response.
United States Senate