Talk:Federal Deposit Insurance Corporation Improvement Act of 1991

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Clarification from Fed Chairman in 2008[edit]

A potential source for more information to improve this article is included in Bernanke's recent statement about potential reforms to the US banking regulatory structure for securities firms. In it, BB summarizes an important understanding of the FDICIA 1991 act, which would probably be useful in the article.

... the Congress may wish to consider whether new tools are needed for ensuring an orderly liquidation of a systemically important securities firm that is on the verge of bankruptcy, together with a more formal process for deciding when to use those tools. ... The details of any such tools and of the associated decisionmaking process require more study. As Chairman Bair recently pointed out, one possible model is the process currently in place under the Federal Deposit Insurance Corporation Improvement Act (FDICIA) for dealing with insolvent commercial banks. The FDICIA procedures give the Federal Deposit Insurance Corporation (FDIC) the authority to act as a receiver for an insolvent bank and to set up a bridge bank to facilitate an orderly liquidation of the firm. A bridge bank authority is an important mechanism for minimizing public losses from government intervention while imposing losses on shareholders and unsecured creditors, thereby limiting moral hazard and mitigating any adverse impact of government intervention on market discipline. The FDICIA law also requires that failing banks be resolved in a way that imposes the least cost to the government (in this case, to the deposit insurance fund), unless the Treasury, the FDIC, the Federal Reserve Board, and the President agree that following the least-cost route would entail significant systemic risk. The hurdle for using the so-called systemic risk exception is appropriately high, but the flexibility to respond in a true financial emergency is retained. (emphasis added)[1]

Talk Page Notes[edit]