Co-authored by Heath Tarbert, Conray C. Tseng and Abigail L. Lerner.
Bankruptcy law often intersects with various other areas of law. One such intersection is the so-called “living wills” rule to be promulgated by the FDIC and the Federal Reserve under section 165(d) of the Dodd-Frank Act. On July 6, 2011, the FDIC’s Board of Directors met to discuss the proposed “living wills” rule that would require certain systemically important financial institutions to prepare and periodically update so-called “living wills” to resolve their affairs under the Bankruptcy Code if the institution faced material distress or failure. Also addressed were required reports identifying the institutions’ credit exposures to other systemically important firms. In April, the FDIC and the Federal Reserve published proposed rules on living wills and credit exposure reports for comment by June 10th. Final rules may be issued as soon as the end of August.
While the FDIC did not issue and approve a final rule on living wills, agency officials provided a bit of color and some insight into the ongoing rulemaking process when updating the agency’s Board of Directors. They reported that the FDIC received 19 formal comment letters and also met with various individuals and interested parties regarding the proposed rules. Officials reported that a broad group of interested parties provided comments, including numerous trade associations, public interest groups, and various large financial institutions. In listing certain highlights, officials noted that the comments addressed both substantive and procedural requirements, including issues relating to the confidentiality of information and the possible staggering of the relevant regulatory reporting periods. The FDIC has met on numerous occasions with its colleagues at the Federal Reserve and the two agencies are purportedly in accord with respect to the overarching approach and philosophy for living wills.
In addressing a question from Chairman Sheila Bair about the coordination between U.S. regulatory agencies and their overseas counterparts, Michael Krimminger, the FDIC’s General Counsel, remarked that a close relationship exists between U.S. regulators and the U.K.’s Financial Services Authority. Furthermore, the living will requirements of Dodd-Frank will likely be consistent with the Financial Stability Board’s proposed standards on resolution planning. FDIC officials on this occasion, as on others, noted that the U.S. should be viewed as a leader on living wills and may need to encourage other countries to engage in similar regulatory efforts.
When responding to inquiries about timing, FDIC officials noted that the final rule on living wills would likely be released in the “very near future.” In her comments, Chairman Bair specifically stated that, based on her discussion with Federal Reserve Chairman Bernanke, it is her expectation that a final rule could be released as soon as the end of August.
Weil has formed a Living Wills Task Force to monitor the ongoing rulemaking process and will provide periodic updates as further information becomes available. For more information about the Dodd-Frank Act and its living wills requirement, visit our Financial Regulatory Reform website at http://financial-reform.weil.com. We will also provide periodic updates on our Bankruptcy Blog.