Mark R. Warner

July 30, 2009

Warner, Corker Bill Gives FDIC Authority to Wind-Down Bank Hold Companies

~Bipartisan bill is an interim step to address broader regulatory reform~

WASHINGTON – U.S. Senator Mark R. Warner of Virginia joined Senator Bob Corker of Tennessee today in introducing legislation giving the FDIC authority to resolve, or wind down, bank holding companies, an important interim step toward addressing broader regulatory reform. The senators, both members of the Senate Banking Committee, say the FDIC needs this additional authority to fill a glaring regulatory gap that has come to light over the last 18 months.

The Resolution Reform Act of 2009 is the second piece of legislation jointly sponsored Senators Warner and Corker. The senators also have introduced The TARP Recipient Ownership Trust Act of 2009, designed to quickly relinquish the federal government’s ownership stake in private companies such as AIG, General Motors and Citibank in a responsible, orderly manner that will protect and maximize the taxpayer’s investment.

The legislation filed today, The Resolution Reform Act of 2009, would extend the FDIC’s authority, putting a bank holding company into the hands of the FDIC if the bank (insured depository institution) within the holding company structure needs to be resolved. The bank holding company would be moved into receivership, the pieces would be sold off, and the company would no longer exist.

“While the Banking Committee continues working to fix what is broken in our hodge-podge system of financial regulation, this legislation represents an interim step to patch a problem with the existing regulatory structure,” Senator Warner said. “While the FDIC has the authority to resolve failing banks, it does not have the authority to resolve bank holding companies, and that creates complications which places deposit holders and the deposit insurance fund at greater risk. Senator Corker and I believe that is a risk we cannot afford and should not allow to continue.”

 “At a hearing last week I asked FDIC Chairman Sheila Bair if having a resolution mechanism in place to deal with the problems some of our ‘too-big-to-fail’ financial institutions would have reduced the risk to our system,” Senator Corker said. “She said absolutely – it would have created better market discipline across the system and reduced market uncertainty about who would be next, who would win, and who would lose. I think it’s important to create this mechanism and provide clarity so that as we approach broader regulatory reform we don’t have the moral hazard of a ‘too big to fail’ mentality.”

The bill does not address “systemic” resolution but does drive a stake in the ground for the FDIC to serve as receiver, eliminating the practice of conservatorship or “propping up” of failed financial institutions. Corker and Warner believe this is significant for creating market certainty.

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