Resolving a Large Bank: FDIC’s Perspective Fred Carns Director, Division of Insurance and Research Federal Deposit Insurance Corporation
Overview • Legal framework • FDIC objectives • Selected issues • Resolution options
Legal Constraints • Least-cost test • Systemic risk exception • Discount window borrowing • Qualified Financial Contracts (QFCs)
Complexities of a Large Bank Failure • Bank characteristics • Size • Holding company structure • Foreign operations • QFCs and role in the derivatives markets • Payment systems role • Failure characteristics • Speed • Failure date may be determined by markets, not regulators • Not necessarily on Friday
Industry Statistics FDIC-insured banking assets by company, as of June 30, 2004. Dollars are reported in billions.
FDIC Objectives • Adhere to the spirit of FDICIA • A balancing act • Market discipline vs. financial stability • More specifically: • Minimize insurance fund cost • Minimize systemic risk • Provide liquidity to depositors • Manage liquidity in the deposit insurance fund(s)
Selected Issues • Resolution cost estimates for various options • Deposit insurance claims • Relationships with the holding company • QFCs • Funding
What might a resolution look like? • Not orchestrated on a Friday • Resolution options • QFC options • Deposit options • Links to the holding company