Corker presses bank regulators on orderly liquidation

"Creditors could easily be held harmless by holding those loans at the subsidiary level," he warned at the Senate Banking hearing.

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.