§5383 — Title 12 Banks and Banking | U.S. Code

Summary

Federal regulators must think about and vote on whether to recommend that the Secretary put a big troubled financial company into a special receivership run by the Corporation. For most companies, the Board of Governors and the Corporation’s board must each approve the recommendation by at least two-thirds of their members. If the biggest U.S. unit is a broker or dealer, the Securities and Exchange Commission and the Board must each approve by two-thirds and talk with the Corporation. If the biggest U.S. unit is an insurance company, the Board must approve by two-thirds and the Director of the Federal Insurance Office must also agree. Any written recommendation must cover eight things, including whether the company is in or near default; how its failure would affect U.S. financial stability and low-income or minority communities; recommended actions; whether private fixes or bankruptcy could work; effects on creditors, counterparties, and shareholders; and whether the company meets the legal definition of a financial company. After getting that recommendation, the Secretary must act under the law if, in consultation with the President, the Secretary finds seven things: the company is in or near default; its failure would seriously hurt U.S. financial stability; no viable private alternative exists; effects on creditors and others are appropriate given the stability concern; action under section 5384 would help, considering effectiveness, cost to the Treasury, and the risk of encouraging risky behavior; a regulator has ordered conversion of the company’s convertible debt; and the company fits the definition under section 5381. The Secretary must document the decision, keep the records, and tell the company and the Corporation. Within 24 hours after the Corporation is named receiver, the Secretary must send a written summary to key Senate and House leaders and to the banking committees listing, as available, items like the company’s size and condition, capital sources, operations that affect markets, possible replacement providers, international effects, estimated impact on U.S. stability, effects on consumers and the financial system, and whether other resolution would cause severe bank liquidity problems. Within 60 days the Corporation must file and publish a detailed report to Congress about the company’s finances at appointment, the wind-down plan and costs, reasons for any Fund payments, any special claimant payments, and conflict-of-interest waivers; the report must be updated at least quarterly, and the Corporation and the company’s main regulator must appear before Congress within 30 days of the first report if asked. The Comptroller General will review and report on any case that leads to the Corporation being appointed. As soon as practicable after July 21, 2010, the Corporation must set rules the Secretary accepts for using funds for these actions. If the covered company is an insurance company, its liquidation or rehabilitation follows state law, except the Corporation can file for state court action if the state regulator does not do so within 60 days after the federal determination. Defined terms (one line each): "In default or in danger of default" — situations where bankruptcy is likely, capital is or will be wiped out, liabilities exceed assets, or the firm can’t pay debts in the normal course. "Financial company" — the kind of firm described in section 5381.

Title 12, §5383

Banks and Banking — Source: USLM XML via OLRC

(a)(1)(A)On their own initiative, or at the request of the Secretary, the Corporation and the Board of Governors shall consider whether to make a written recommendation described in paragraph (2) with respect to whether the Secretary should appoint the Corporation as receiver for a financial company. Such recommendation shall be made upon a vote of not fewer than ⅔ of the members of the Board of Governors then serving and ⅔ of the members of the board of directors of the Corporation then serving.

(B)In the case of a broker or dealer, or in which the largest United States subsidiary (as measured by total assets as of the end of the previous calendar quarter) of a financial company is a broker or dealer, the Commission and the Board of Governors, at the request of the Secretary, or on their own initiative, shall consider whether to make the written recommendation described in paragraph (2) with respect to the financial company. Subject to the requirements in paragraph (2), such recommendation shall be made upon a vote of not fewer than ⅔ of the members of the Board of Governors then serving and ⅔ of the members of the Commission then serving, and in consultation with the Corporation.

(C)In the case of an insurance company, or in which the largest United States subsidiary (as measured by total assets as of the end of the previous calendar quarter) of a financial company is an insurance company, the Director of the Federal Insurance Office and the Board of Governors, at the request of the Secretary or on their own initiative, shall consider whether to make the written recommendation described in paragraph (2) with respect to the financial company. Subject to the requirements in paragraph (2), such recommendation shall be made upon a vote of not fewer than ⅔ of the Board of Governors then serving and the affirmative approval of the Director of the Federal Insurance Office, and in consultation with the Corporation.

(2)Any written recommendation pursuant to paragraph (1) shall contain—

(A)an evaluation of whether the financial company is in default or in danger of default;

(B)a description of the effect that the default of the financial company would have on financial stability in the United States;

(C)a description of the effect that the default of the financial company would have on economic conditions or financial stability for low income, minority, or underserved communities;

(D)a recommendation regarding the nature and the extent of actions to be taken under this subchapter regarding the financial company;

(E)an evaluation of the likelihood of a private sector alternative to prevent the default of the financial company;

(F)an evaluation of why a case under the Bankruptcy Code is not appropriate for the financial company;

(G)an evaluation of the effects on creditors, counterparties, and shareholders of the financial company and other market participants; and

(H)an evaluation of whether the company satisfies the definition of a financial company under section 5381 of this title.

(b)Notwithstanding any other provision of Federal or State law, the Secretary shall take action in accordance with section 5382(a)(1)(A) of this title, if, upon the written recommendation under subsection (a), the Secretary (in consultation with the President) determines that—

(1)the financial company is in default or in danger of default;

(2)the failure of the financial company and its resolution under otherwise applicable Federal or State law would have serious adverse effects on financial stability in the United States;

(3)no viable private sector alternative is available to prevent the default of the financial company;

(4)any effect on the claims or interests of creditors, counterparties, and shareholders of the financial company and other market participants as a result of actions to be taken under this subchapter is appropriate, given the impact that any action taken under this subchapter would have on financial stability in the United States;

(5)any action under section 5384 of this title would avoid or mitigate such adverse effects, taking into consideration the effectiveness of the action in mitigating potential adverse effects on the financial system, the cost to the general fund of the Treasury, and the potential to increase excessive risk taking on the part of creditors, counterparties, and shareholders in the financial company;

(6)a Federal regulatory agency has ordered the financial company to convert all of its convertible debt instruments that are subject to the regulatory order; and

(7)the company satisfies the definition of a financial company under section 5381 of this title.

(c)(1)The Secretary shall—

(A)document any determination under subsection (b);

(B)retain the documentation for review under paragraph (2); and

(C)notify the covered financial company and the Corporation of such determination.

(2)Not later than 24 hours after the date of appointment of the Corporation as receiver for a covered financial company, the Secretary shall provide written notice of the recommendations and determinations reached in accordance with subsections (a) and (b) to the Majority Leader and the Minority Leader of the Senate and the Speaker and the Minority Leader of the House of Representatives, the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Financial Services of the House of Representatives, which shall consist of a summary of the basis for the determination, including, to the extent available at the time of the determination—

(A)the size and financial condition of the covered financial company;

(B)the sources of capital and credit support that were available to the covered financial company;

(C)the operations of the covered financial company that could have had a significant impact on financial stability, markets, or both;

(D)identification of the banks and financial companies which may be able to provide the services offered by the covered financial company;

(E)any potential international ramifications of resolution of the covered financial company under other applicable insolvency law;

(F)an estimate of the potential effect of the resolution of the covered financial company under other applicable insolvency law on the financial stability of the United States;

(G)the potential effect of the appointment of a receiver by the Secretary on consumers;

(H)the potential effect of the appointment of a receiver by the Secretary on the financial system, financial markets, and banks and other financial companies; and

(I)whether resolution of the covered financial company under other applicable insolvency law would cause banks or other financial companies to experience severe liquidity distress.

(3)(A)Not later than 60 days after the date of appointment of the Corporation as receiver for a covered financial company, the Corporation shall file a report with the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives—

(i)setting forth information on the financial condition of the covered financial company as of the date of the appointment, including a description of its assets and liabilities;

(ii)describing the plan of, and actions taken by, the Corporation to wind down the covered financial company;

(iii)explaining each instance in which the Corporation waived any applicable requirements of part 366 of title 12, Code of Federal Regulations (or any successor thereto) with respect to conflicts of interest by any person in the private sector who was retained to provide services to the Corporation in connection with such receivership;

(iv)describing the reasons for the provision of any funding to the receivership out of the Fund;

(v)setting forth the expected costs of the orderly liquidation of the covered financial company;

(vi)setting forth the identity of any claimant that is treated in a manner different from other similarly situated claimants under subsection (b)(4), (d)(4), or (h)(5)(E), the amount of any additional payment to such claimant under subsection (d)(4), and the reason for any such action; and

(vii)which report the Corporation shall publish on an online website maintained by the Corporation, subject to maintaining appropriate confidentiality.

(B)The Corporation shall, on a timely basis, not less frequently than quarterly, amend or revise and resubmit the reports prepared under this paragraph, as necessary.

(C)The Corporation and the primary financial regulatory agency, if any, of the financial company for which the Corporation was appointed receiver under this subchapter shall appear before Congress, if requested, not later than 30 days after the date on which the Corporation first files the reports required under subparagraph (A).

(4)For purposes of this subchapter, a financial company shall be considered to be in default or in danger of default if, as determined in accordance with subsection (b)—

(A)a case has been, or likely will promptly be, commenced with respect to the financial company under the Bankruptcy Code;

(B)the financial company has incurred, or is likely to incur, losses that will deplete all or substantially all of its capital, and there is no reasonable prospect for the company to avoid such depletion;

(C)the assets of the financial company are, or are likely to be, less than its obligations to creditors and others; or

(D)the financial company is, or is likely to be, unable to pay its obligations (other than those subject to a bona fide dispute) in the normal course of business.

(5)The Comptroller General of the United States shall review and report to Congress on any determination under subsection (b), that results in the appointment of the Corporation as receiver, including—

(A)the basis for the determination;

(B)the purpose for which any action was taken pursuant thereto;

(C)the likely effect of the determination and such action on the incentives and conduct of financial companies and their creditors, counterparties, and shareholders; and

(D)the likely disruptive effect of the determination and such action on the reasonable expectations of creditors, counterparties, and shareholders, taking into account the impact any action under this subchapter would have on financial stability in the United States, including whether the rights of such parties will be disrupted.

(d)As soon as is practicable after July 21, 2010, the Corporation shall establish policies and procedures that are acceptable to the Secretary governing the use of funds available to the Corporation to carry out this subchapter, including the terms and conditions for the provision and use of funds under section 5384(d), 5390(h)(2)(G)(iv), and 5390(h)(9) of this title.

(e)(1)Notwithstanding subsection (b), if an insurance company is a covered financial company or a subsidiary or affiliate of a covered financial company, the liquidation or rehabilitation of such insurance company, and any subsidiary or affiliate of such company that is not excepted under paragraph (2), shall be conducted as provided under applicable State law.

(2)The requirement of paragraph (1) shall not apply with respect to any subsidiary or affiliate of an insurance company that is not itself an insurance company.

(3)Notwithstanding paragraph (1), with respect to a covered financial company described in paragraph (1), if, after the end of the 60-day period beginning on the date on which a determination is made under section 5382(a) of this title with respect to such company, the appropriate regulatory agency has not filed the appropriate judicial action in the appropriate State court to place such company into orderly liquidation or rehabilitation under the laws and requirements of the State, the Corporation shall have the authority to stand in the place of the appropriate regulatory agency and file the appropriate judicial action in the appropriate State court to place such company into orderly liquidation or rehabilitation under the laws and requirements of the State.

Notes & Related Subsidiaries

Editorial Notes

References in Text

This subchapter, referred to in subsecs. (a) to (d), was in the original “this title”, meaning title II of Pub. L. 111–203, July 21, 2010, 124 Stat. 1442, which is classified principally to this subchapter. For complete classification of title II to the Code, see Tables.

Amendments

2015—Subsec. (e)(3). Pub. L. 114–113 inserted “or rehabilitation” after “orderly liquidation” in two places.

Statutory Notes and Related Subsidiaries

Effective Date

Section effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as a note under section 5301 of this title.

§5383 Systemic risk determination