FDIC Set to Unveil its ‘Single Point’ PlanBanker Resource
December 11, 2013 — 1,320 views
The Federal Deposit Insurance Corporation is all set to release the long awaited document which outlines the details of how it plans on using ‘single entry point’ method for rebuilding failed companies.
Last year, the FDIC had backed this strategy as a part of the Dodd-Frank Act powers implementation for unwinding huge firms. However, the agency consistently said that it will be providing further details in its policy document while also explaining how this single point entry method will work practically.
‘Single Point’ Approach
The basic concept explained in the document is to close the failed firm’s holding company and also to transfer the healthy subsidiaries of the firm to a new institution which can be managed while proceeding with the defunct company’s resolution. To recapitalize the firm, shareholders will need to be wiped out. Unsecured creditors, on the other hand, can seek equity claims for the same. But one question that has still not been answered, even by the FDIC, is that how much debt and equity will big financial holding firms have to hold? Now that the FDIC is geared for unveiling the method, most of the answers are expected to come out soon.
However, in spite of several speeches given by officials of the FDIC about lauding this strategy, a large part of the financial community is still eager on watching more specifics coming in. These specifics also include the bridge firm’s structure and how exactly the agency will make use of the liquidity fund from Treasury Department for helping in managing a systemic resolution.
The policy statement will be open for comment for next two months. Industry insiders feel that the industry needs as well as wants this resolution to make it through the process and work.
It has been around two years since this single entry point approach was unveiled by FDIC for implementing the mandate of Dodd-Frank Act for proper liquidation of important financial companies. Almost four months after this unveiling, that is, around May 2012 Martin Gruenberg, Chairman of FDIC, garnered a lot of attention with his first speech on this topic at the annual bank policy conference in Federal Reserve Bank of Chicago.
Since then, he along with some other officials of FDIC have given many speeches which have all focused on the same thing. The wait has made many impatient. Karen Shaw Petrou from Federal Financial Analytics had told that in case any operational execution is not seen in this case soon, it may most likely collapse.