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Corker presses bank regulators on orderly liquidation
Sen. Bob Corker (R-Tenn.) is pressuring bank regulators to make sure creditors do not escape consequences if a large financial institution collapses.
Corker pressed financial regulators Thursday during a hearing on how they are going about implementing a key power of the Dodd-Frank financial reform law, which gives the government the ability to step in and liquidate an ailing financial institution.
The goal of the provision is to ensure that banks do not need to be bailed out again if their practices lead them to failure, but Corker maintains that the regulators' approach to implementing this rule could allow creditors to skirt having to pay the consequences of liquidation.
In a letter sent Friday to Federal Deposit Insurance Commission (FDIC) Chairman Martin Gruenberg, Corker argued that under the current approach, creditors could simply issue debt at a subsidiary level.
Under the FDIC's current approach, dubbed the "single point of entry" approach, an ailing bank would have to be recapitalized by the bank-holding company, which would then fail instead. Then, the FDIC would step in and create a bridge company that would receive all the assets. The end result would be that healthy subsidiaries could continue operating, minimizing the disruption to the overall system, while the holding company's shareholders and creditors would be wiped out, paying the price for the failure.
But Corker contends that this approach gives creditors looking to avoid that penalty an easy out: simply function at the subsidiary level. Now he wants to know how regulators will continue with their current plan for orderly liquidation while ensuring no creditors are able to escape responsibility.
"My question to you is the following: if you follow through with a single point of entry approach, how do we ensure that creditors at any level of the financial institution take losses?" he wrote.
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