FDIC proposes rule requiring firms to outline plans in case of failure

The Federal Deposit Insurance Corporation is proposing a rule that would require certain financial institutions provide a plan to unwind in case of failure. 

The firms would submit plans to the FDIC so the agency can assess risks to the deposit insurance fund in an effort to develop resolution strategies for "a period of severe financial distress," according to an FDIC release Wednesday.

The rule would further firm up a portion of the financial regulatory reform legislation under consideration in the Senate that aims to end the practice of taxpayer bailouts by closing loopholes used by the FDIC and Treasury Department to provide federal aid to failing financial firms.

Senate Republicans and Democrats reached an agreement last week on the bill's provisions aimed at smoothing the unwinding process of failing firms. 

The proposed rule would apply only to "covered insured depository institutions" with greater than $10 billion in total assets that are owned or controlled by parent companies with more than $100 billion in total assets.

The FDIC would require information about the operations, management, financial aspects and affiliate relationships of the eligible financial institutions. The firms would be required to submit a plan within six months of the rule's effective date on how it would separate from its parent company in the event of failure or bankruptcy.

The FDIC would then determine if the plan is workable and require an update at least once a year based on the risk profile and structure of the institution.