FDIC floats rules on when they’ll close financial firms

A story by Deborah Solomon in the Wall Street Journal covers an FDIC proposal that will let financial creditors take the hit when a financial firm must be closed “but left wiggle room for the U.S. to make payments to certain types of creditors.”

“The proposal is the first step in the government's effort to clarify how it will seize and dismantle large financial firms that run into trouble. The Federal Deposit Insurance Corp. was given authority to liquidate firms as part of the U.S. effort to prevent another collapse like that of Lehman Brothers, whose demise rippled through the financial sector.”

The FDIC is taking the action at the same time that regulators in other countries are addressing the so-called “too big to fail” firms and banks.

What’s the FDIC considering? As a first step

it planned to prohibit additional payments to shareholders and long-term debtholders in the event of a firm's demise. The FDIC said it could make additional payments to certain short-term creditors in situations where it maintains "essential operations" or to "minimize losses and maximize recoveries."

The proposed rule has been put out for comment. We’ll keep you posted.

By the way, three more banks recently failed.

Here’s the WSJ story.

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