The Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act, provides a framework for the orderly failure of a large, complex, systemically important financial institution. The FDIC has an important role in developing and implementing that framework.
Bankruptcy is the statutory first option. The largest bank holding companies and designated non-bank financial companies are required to submit resolution plans, also referred to as “living wills,” which are reviewed by the FDIC and the Federal Reserve. These living wills must demonstrate that the firm could be resolved under bankruptcy without severe adverse consequences for the financial system or the U.S. economy.
As a backstop, when an orderly bankruptcy might not be possible, the Dodd-Frank Act provides the Orderly Liquidation Authority. This resolution authority allows the FDIC to manage the orderly failure of a large financial firm.