New legislation described as an “interim” measure was introduced by Republican Bob Corker and Democrat Mark Warner to give the Federal Deposit Insurance Corp. power to wind down bank holding companies.
What the bill was introduced to allegedly handle over the short term, until broader financial regulatory reforms are addressed, is the authority to wind down a bank holding company that is failing. As of now the FDIC only has the power to wind down a failing bank.
“The FDIC has the authority to wind down a failing bank, but not a failing bank holding company, which has exacerbated the moral hazard problem we’ve seen over the past 18 months,” according to Corker.
This is meant to temporarily stop the government, or really, taxpayers dollars, from being used to prop up failing banks or financial institutions.
Both of the lawmakers serve on the Senate Banking Committee, which is currently working on a broad plan to change the existing regulations in the financial and banking services industry. They obviously see the potential to be caught off guard with new crises which would exasperate the situation, while working on solidifying the existing one.
Also included in the bill would be a provision for unsecured creditors of a failed bank or financial institution set in this order of priority: the receiver’s administrative expenses and FDIC obligations, obligations to shareholders, members, general partners or other people with interests in the equity of the holding company or affiliates.
