US Treasury Report Recommends Reforms to Orderly Liquidation Authority
The U.S. Department of the Treasury released a report on its review and recommendations on the Orderly Liquidation Authority (OLA). The report responds to the Presidential Memorandum directing Treasury to propose recommendations to align OLA with the Core Principles for Financial Regulation and determine whether the Bankruptcy Code should be reformed to better enable resolution of financial companies. The recommendations of the US Treasury ensure that taxpayers are protected by strengthening the bankruptcy procedure for a failed financial company and by retaining OLA in very limited circumstances with significant reforms.
In the report, Treasury recommends a new Chapter 14 of the Bankruptcy Code for distressed financial companies. Treasury recommends significant reforms to make bankruptcy a more effective option for financial companies. The Chapter 14 framework would preserve the key advantage of the existing bankruptcy process—clear, predictable, impartial adjudication of competing claims—while adding procedural features tailored to the unique challenges posed by large, interconnected financial companies. These enhancements to the Bankruptcy Code would make the likelihood of having to use OLA even more remote. Since the bankruptcy of a large, complex financial company may not be feasible in some circumstances, Treasury also recommends retaining OLA as an emergency tool for use under extraordinary circumstances. OLA is the resolution regime created by Title II of the Dodd-Frank Act.
Treasury recommends making significant reforms to the OLA process to eliminate opportunities for ad hoc disparate treatment of similarly situated creditors, reinforce existing taxpayer protections, and strengthen judicial review. The report includes the following recommendations to reform OLA:
- Treasury recommends eliminating the authority of FDIC to treat similarly situated creditors differently on an ad hoc basis.
- Treasury recommends repeal of the tax-exempt status of the bridge company.
- With respect to use of the Orderly Liquidation Fund (OLF), Treasury recommends, to the extent possible, that guarantees of private-sector lending be used as opposed to direct loans and that premium rates of interest or guarantee fees, as applicable, be charged to encourage a prompt return to reliance on private-sector credit markets.
- Treasury recommends that the backstop assessment be imposed as soon as reasonably possible if an OLF loan is not repaid.
- Treasury recommends reforms to the judicial review provisions related to use of the OLA to provide additional assurance that the decision of government to appoint FDIC as receiver of a financial company is the product of reasoned and well-supported analysis.
Related Links
Keywords: Americas, US, Banking, Insurance, Securities, OLA, Resolution Regime, Dodd-Frank Act, US Treasury
Previous Article
BIS Formalizes Agreement to Set Up Innovation Hub in Hong Kong SARRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
