Notice of Proposed Rulemaking Implementing Certain Orderly Liquidation Authority Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 64173-64182 [2010-26049]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 75, Number 201 (Tuesday, October 19, 2010)]
[Proposed Rules]
[Pages 64173-64182]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-26049]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 380


Notice of Proposed Rulemaking Implementing Certain Orderly 
Liquidation Authority Provisions of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The FDIC is proposing a rule (``Proposed Rule ''), with 
request for comments, which would implement certain provisions of its 
authority to resolve covered financial companies under Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-
Frank Act'') (July 21, 2010). The FDIC's intent in issuing this 
Proposed Rule is to provide greater clarity and certainty about how key 
components of this authority will be implemented and to ensure that the 
liquidation process under Title II reflects the Dodd-Frank Act's 
mandate of transparency in the liquidation of failing systemic 
financial companies.

DATES: Written comments on the Proposed Rule and questions on that rule 
must be received by the FDIC not later than November 18, 2010. Written 
responses to the additional questions posed by the FDIC must be 
received by the FDIC not later than January 18, 2011.

[[Page 64174]]


ADDRESSES: You may submit comments by any of the following methods:
     Agency Web Site: http:www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency Web 
Site.
     E-mail: Comments@FDIC.gov. Include ``Orderly Liquidation'' 
in the subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m. (EDT).
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Public Inspection: All comments received will be posted 
without change to https://www.fdic.gov/regulations/laws/federal 
including any personal information provided. Paper copies of public 
comments may be ordered from the Public Information Center by telephone 
at (877) 275-3342 or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT: Michael Krimminger, Office of the 
Chairman, 202-898-8950; R. Penfield Starke, Legal Division, 703-562-
2422; Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    Prior to the enactment of the Dodd-Frank Act, Public Law 111-203, 
12 U.S.C. 5301 et seq., on July 21, 2010, there was no common or 
adequate statutory scheme for the orderly liquidation of a financial 
company whose failure could adversely affect the financial stability of 
the United States. Instead, insured depository institutions were 
subject to an FDIC-administered receivership under applicable 
provisions of the Federal Deposit Insurance Act (``FDI Act''), 
insurance companies were subject to insolvency proceedings under 
individual State's laws, registered brokers and dealers were subject to 
the U.S. Bankruptcy Code and proceedings under the Securities Investor 
Protection Act, and other companies (including the parent holding 
company of one or more insured depository institutions or other 
financial companies) were eligible to be a debtor under the U.S. 
Bankruptcy Code. These disparate insolvency regimes were found to be 
inadequate to effectively address the actual or potential failure of a 
financial company that could adversely affect economic conditions or 
financial stability in the United States. In such a case, financial 
support for the company sometimes was the only viable option available 
for the Federal government to avoid or mitigate serious adverse effects 
on economic conditions and financial stability that could result from 
the company's failure.
    With the enactment of the Dodd-Frank Act, Federal regulators have 
the tools to resolve a failing financial company that poses a 
significant risk to the financial stability of the United States. The 
receivership process established under Title II of the Dodd-Frank Act 
provides for an orderly liquidation of such a ``covered financial 
company'' in a way that addresses the concerns and interests of 
legitimate creditors while also protecting broader economic and 
taxpayer interests.

Appointment of Receiver

    Title II of the Dodd-Frank Act provides a process for the 
appointment of the FDIC as receiver of a failing financial company that 
poses significant risk to the financial stability of the United States 
(a ``covered financial company''). Under this process, certain 
designated Federal regulatory agencies must recommend to the Secretary 
of the Treasury (the ``Secretary'') that the Secretary, after 
consultation with the President, make a determination that grounds 
exist to appoint the FDIC as receiver of the company. The Federal 
Reserve Board and the Securities and Exchange Commission will make the 
recommendation if the company or its largest U.S. subsidiary is a 
broker or a dealer; the Federal Reserve Board and the Director of the 
Federal Insurance Office will make the recommendation if the company or 
its largest subsidiary is an insurance company; and the Federal Reserve 
Board and the FDIC will make the recommendation in all other cases. 
This procedure is similar to that which is applied to systemic risk 
determinations under section 13 of the FDI Act (12 U.S.C. 1823(c)(4)).
    The Dodd-Frank Act requires that recommendations to the Secretary 
include an evaluation of whether the covered financial company is in 
default or in danger of default, a description of the effect that the 
company's default would have on the financial stability of the United 
States, and an evaluation of why a case under the Bankruptcy Code would 
not be appropriate. In determining whether the FDIC should be appointed 
as receiver, the Secretary must make specific findings in support, 
including: that the company is in default or in danger of default; that 
the failure of the company and its resolution under otherwise 
applicable Federal or State law would have serious adverse effects on 
financial stability in the United States; no viable private sector 
alternative is available; any effect on the claims or interests of 
creditors, counterparties, and shareholders is appropriate; any action 
under the liquidation authority will avoid or mitigate such adverse 
effects taking into consideration the effectiveness of the action in 
mitigating the potential adverse effects on the financial system, cost 
to the general fund of the Treasury, and the potential to increase 
excessive risk taking; a Federal regulatory agency has ordered the 
company to convert all of its convertible debt instruments that are 
subject to regulatory order; and the company satisfies the definition 
of a financial company under the law.
    If the Secretary makes the recommended determination and the board 
of directors (or similar governing body) of the company acquiesces or 
consents to the appointment, then the FDIC's appointment as receiver is 
effective immediately. If the company's governing body does not 
acquiesce or consent, the Dodd-Frank Act provides for immediate 
judicial review by the United States District Court for the District of 
Columbia of whether the Secretary's determinations that the covered 
financial company is in default or danger of default and that it meets 
the definition of financial company under Title II are arbitrary and 
capricious.\1\ If the court upholds the Secretary's determination, it 
will issue an order authorizing the Secretary to appoint the FDIC as 
receiver.\2\ If the court fails to act within twenty-four hours of 
receiving the petition, then the appointment of the receiver takes 
effect by operation of law.
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    \1\ The immediate judicial review required by the Dodd-Frank Act 
contrasts with the analogous provisions in the National Bank Act (12 
U.S.C. 191(b)), the Home Owner's Loan Act (12 U.S.C. 1464(c)(2)(B)), 
and the Federal Deposit Insurance Act (12 U.S.C. 1821(c)(7)). Each 
of these statutes permits judicial review of the appointment of the 
receiver, but only after the appointment has taken effect.
    \2\ If the court overrules the Secretary's determination, the 
Secretary is provided the opportunity to amend and refile the 
petition immediately. The Dodd-Frank Act includes appeal provisions, 
but does not provide for a stay of the actions taken by the receiver 
after its appointment.
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Orderly Liquidation

    Title II of the Dodd-Frank Act (entitled ``Orderly Liquidation 
Authority'') also defines the policy goals of the liquidation 
proceedings and provides the powers and duties of the FDIC as receiver 
for a covered financial

[[Page 64175]]

company. Section 204(a) \3\ succinctly summarizes those policy goals as 
the liquidation of ``failing financial companies that pose a 
significant risk to the financial stability of the United States in a 
manner that mitigates such risk and minimizes moral hazard.'' The 
statute goes on to say that ``creditors and shareholders will bear the 
losses of the financial company'' and the FDIC is instructed to 
liquidate the covered financial company in a manner that maximizes the 
value of the company's assets, minimizes losses, mitigates risk, and 
minimizes moral hazard. See sections 204(a) and 210(a)(9)(E). 
Fundamentally, a liquidation under the Dodd-Frank Act is a liquidation 
of the company that imposes the losses on its creditors and 
shareholders. Not only is the FDIC prohibited from taking an equity 
interest in or becoming a shareholder of a covered financial company or 
any covered subsidiary, but other provisions of the Dodd-Frank Act bar 
any Federal government bail-out of a covered financial company. See 
section 210(h)(3)(B). In this way, the statute will prevent any future 
taxpayer bailout by providing a liquidation process that will prevent a 
disorderly collapse, while ensuring that taxpayers bear none of the 
costs.
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    \3\ Unless the context requires otherwise, all section 
references are to the Dodd-Frank Act.
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    Similarly, management, directors, and third parties who are 
responsible for the company's failing financial condition will be held 
accountable. The FDIC must remove any management and members of the 
board of directors of the company who are responsible for the failing 
condition of the covered financial company. See section 206.
    While ensuring that creditors bear the losses of the company's 
failure under a specific claims priority, Title II incorporates 
procedural and other protections for creditors to ensure that they are 
treated fairly. For example, creditors can file a claim with the 
receiver and, if dissatisfied with the decision, may file a case in 
U.S. district court in which no deference is given to the receiver's 
decision. See section 210(a)(2)-(4). Once claims are proven, the FDIC 
has the authority to make interim payments to the creditors, consistent 
with the priority for payment of their allowed claims, as it does in 
resolutions of insured depository institutions. This accelerated or 
advance dividend authority, provided in section 210(a)(7), is a 
valuable tool to provide payments to creditors and lessen the economic 
and financial impact of the liquidation. In addition, creditors also 
are guaranteed that they will receive no less than the amount they 
would have received if the covered financial company had been 
liquidated under Chapter 7 of the Bankruptcy Code. See section 
210(a)(7)(B) and (d)(2)(B). Shareholders of a covered financial company 
will not receive payment until after all other claims are fully paid. 
See section 210(b)(1). This helps ensure that the priority of payments 
will be enforced.
    Parties who are familiar with the liquidation of insured depository 
institutions under the FDI Act or the liquidation of companies under 
the Bankruptcy Code will recognize many parallel provisions in Title 
II. Some provisions are drawn from analogous provisions of the 
Bankruptcy Code in order to clarify and supplement the authority that 
the FDIC normally exercises in a bank receivership. The provisions of 
Title II governing the claims process (including the availability of 
judicial review of claims disallowed by the receiver), the termination 
or repudiation of contracts, and the treatment of qualified financial 
contracts are modeled after the FDI Act, while provisions that empower 
the FDIC to avoid and recover fraudulent transfers, preferential 
transfers, and unauthorized transfers of property by the covered 
financial company are drawn from Bankruptcy Code provisions. The rules 
of Title II governing the setoff of mutual debt provide equivalent 
protections to those under the Bankruptcy Code.
    The liquidation rules of Title II are designed to create parity in 
the treatment of creditors with the Bankruptcy Code and other normally 
applicable insolvency laws. This is reflected in the direct mandate in 
section 209 of the Dodd-Frank Act to ``to seek to harmonize applicable 
rules and regulations promulgated under this section with the 
insolvency laws that would otherwise apply to a covered financial 
company.'' One of the goals of the Proposed Rule would be to begin the 
implementation of this mandate in certain key areas. Of particular 
significance is Sec.  380.2 of the Proposed Rule, which clarifies that 
the authority to make additional payments to certain creditors will 
never be used to provide additional payments, beyond those appropriate 
under the defined priority of payments, to shareholders, subordinated 
debt holders, and bondholders. The FDIC, in this Proposed Rule, is 
proposing that the creditors of the covered financial company will 
never meet the statutory criteria for receiving such additional 
payments.
    Fundamental to an orderly liquidation of a covered financial 
company is the ability to continue key operations, services, and 
transactions that will maximize the value of the firm's assets and 
avoid a disorderly collapse in the market place. The FDIC has long had 
authority under the Federal Deposit Insurance Act to continue 
operations after the closing of failed insured banks if necessary to 
maximize the value of the assets in order to achieve the ``least 
costly'' resolution or to prevent ``serious adverse effects on economic 
conditions or financial stability.'' 12 U.S.C. 1821(d) and 1823(c). 
Under the Dodd-Frank Act, the corresponding ability to continue key 
operations, services, and transactions is accomplished, in part, 
through authority for the FDIC to charter a bridge financial company. 
The bridge financial company is a completely new entity that will not 
be saddled with the shareholders, debt, senior executives or bad assets 
and operations that contributed to the failure of the covered financial 
company or that would impede an orderly liquidation. Shareholders, debt 
holders, and creditors will receive ``haircuts'' based on a clear 
priority of payment set out in section 210(b). As in prior bridge banks 
used in the resolution of large insured depository institutions, 
however, the bridge financial company authority will allow the FDIC to 
stabilize the key operations of the covered financial company by 
continuing valuable, systemically important operations.
    This authority is an important tool for the elimination of ``too 
big to fail'' because it provides the FDIC with the authority to 
prevent a disorderly collapse, while ensuring that bail-outs of failing 
companies will not occur. However, overly broad application of this 
authority could lead creditors to assume that they will be protected 
and impair the needed market discipline. For this reason, it is 
essential that the FDIC clarify that certain categories of creditors 
will never receive additional payments under this authority, that all 
unsecured and under-secured creditors of the failed company should 
expect that they will incur losses, and that the statutory standards 
for application of this authority will be rigorously applied in the 
liquidation of a covered financial company.
    To emphasize that all unsecured creditors should expect to absorb 
losses along with other creditors, the Proposed Rule clarifies the 
narrow circumstances under which creditors could receive any additional 
payments or credit amounts under Sections 210(b)(4), (d)(4), or 
(h)(5)(E). Under the Proposed Rule, such payments or credit amounts 
could be

[[Page 64176]]

provided to a creditor only if the FDIC Board of Directors, by a 
recorded vote, determines that the payments or credits are necessary 
and meet the requirements of Sections 210(b)(4), (d)(4), or (h)(5)(E), 
as applicable. The Proposed Rule further provides that the authority of 
the Board to make this decision cannot be delegated to management or 
staff of the FDIC. By requiring a vote by the Board, the Proposed Rule 
will require a decision on the record and ensure that the governing 
body of the FDIC has made a specific determination that such payments 
are necessary to the essential operations of the receivership or bridge 
financial company, to maximize the value of the assets or returns from 
sale, or to minimize losses.
    Assets and operations that are necessary to maximize the value in 
the liquidation or prevent a disorderly collapse can be continued 
seamlessly through the bridge financial company. This is supported by 
the clear statutory provisions that contracts transferred to the bridge 
financial company cannot be terminated simply because they are assumed 
by the bridge financial company. See section 210(c)(10). As in the FDI 
Act, the FDIC has the authority to require contracting parties to 
continue to perform under their contracts if the contracts are needed 
to continue operations transferred to the bridge. Under the Dodd-Frank 
Act, the contracting parties must continue to perform so long as the 
bridge company continues to perform. In contrast to the Bankruptcy 
Code, the FDIC under the Dodd-Frank Act can similarly require parties 
to financial market contracts to continue to perform so long as 
statutory notice of the transfer is provided within one business day 
after the FDIC is appointed as receiver. This is an important tool to 
allow the FDIC to maximize the value of the failed company's assets and 
operations and to avoid market destabilization. This authority will 
help preserve the value of the company by allowing continuation of 
critical business operations. If financial market contracts are 
transferred to the bridge company, it also can prevent the immediate 
and disorderly liquidation of collateral during a period of market 
distress. This cannot be done under the Bankruptcy Code. The absence of 
funding for continuing valuable contracts and the rights of 
counterparties under the Bankruptcy Code to immediately terminate those 
contracts resulted in a loss of billions of dollars in market value to 
the bankruptcy estate in the Lehman insolvency.\4\
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    \4\ Examiner's Report, pg. 725, https://lehmanreport.jenner.com/VOLUME%202.pdf.
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    The bridge financial company arrangement will provide a timely, 
efficient, and effective means for preserving value in an orderly 
liquidation and avoiding a destabilizing and disorderly collapse. While 
the covered financial company's board of directors and the most senior 
management responsible for its failure will be replaced, as required by 
section 204(a)(2), operations would be continued by the covered 
financial company's employees under the strategic direction of the FDIC 
and contractors employed by the FDIC to help oversee those operations. 
Section 380.2 of the Proposed Rule addresses the treatment of these 
employees.
    To achieve these goals, the FDIC is given broad authority under the 
Dodd-Frank Act to operate or liquidate the business, sell the assets, 
and resolve the liabilities of a covered financial company immediately 
after its appointment as receiver or as soon as conditions make this 
appropriate. This authority will enable the FDIC to act immediately to 
sell assets of the covered financial company to another entity or, if 
that is not possible, to an FDIC-created bridge financial company while 
maintaining critical functions. In receiverships of insured depository 
institutions, the ability to act quickly and decisively has been found 
to reduce losses to the deposit insurance funds while maintaining key 
banking services for depositors and businesses, and it is expected to 
be equally crucial in resolving non-bank financial firms under the 
Dodd-Frank Act.
    A vital element in a prompt sale to other private sector companies 
or the continuation of essential operations in the bridge financial 
company is the availability of funding for those operations. The 
liquidity available under the Dodd-Frank Act will allow both sales at 
better value and a more orderly liquidation. The Act provides that the 
FDIC may borrow funds from the Department of the Treasury to provide 
liquidity for the operations of the receivership and the bridge 
financial company. See sections 204(d) and 210(n). The bridge financial 
company also can access debtor-in-possession financing as needed. Once 
the new bridge financial company's operations have stabilized as the 
market recognizes that it has adequate funding and will continue key 
operations, the FDIC would move as expeditiously as possible to sell 
operations and assets back into the private sector.
    Extensive pre-planning is essential for the effective use of these 
powers. Advance planning will improve the likelihood that the assets or 
operations of a failed financial company can be sold immediately or 
shortly after creation of the bridge financial company to other private 
sector companies. This should be an expected product of the advance 
planning mandates of the Dodd-Frank Act. Those mandates will require 
both regulators and senior management of large, complex financial 
companies to focus more intently on enhancing the resiliency and 
resolvability of the companies' operations. This, in turn, will improve 
the efficiency and speed at which those operations can be transferred 
to other private companies and both greatly enhance the effectiveness 
of crisis management and reduce the extent of governmental intervention 
in the resolution of any future crisis.
    Such advance planning, a well-developed resolution plan, and access 
to the supporting information needed to undertake such planning has 
been a critical component of the FDIC's ability to smoothly resolve 
failing banks. This critical issue is addressed in the Dodd-Frank Act 
in provisions that grant the FDIC back-up examination authority and 
require the largest companies to submit so-called ``living wills'' or 
resolution plans that will facilitate a rapid and orderly resolution of 
the company under the Bankruptcy Code. See section 165(d). An essential 
part of such plans will be to describe how this process can be 
accomplished without posing systemic risk to the public and the 
financial system. If the company cannot submit a credible resolution 
plan, the statute permits the FDIC and the Federal Reserve to jointly 
impose increasingly stringent requirements that, ultimately, can lead 
to divestiture of assets or operations identified by the FDIC and the 
Federal Reserve to facilitate an orderly resolution. The FDIC and the 
Federal Reserve will jointly adopt a rule to implement the resolution 
plan requirements of the Dodd-Frank Act. The availability of adequate 
information and the establishment of feasible resolution plans are all 
the more critical because the largest covered financial companies 
operate globally and their liquidation will necessarily involve 
coordination among regulators around the world.
    To strengthen the foundation for effective resolutions, the FDIC 
also will promulgate other rules and provide additional guidance in 
consultation with the members of the Financial

[[Page 64177]]

Stability Oversight Council to ensure a credible liquidation process 
that realizes the goal of ending ``too big to fail'' while enhancing 
market discipline.
    This highlights another key component of preparedness: the 
necessity of advance planning with other potentially affected 
regulators internationally. The Dodd-Frank Act's framework for an 
orderly liquidation provides the United States with the vital elements 
to prevent contagion in any future crisis, while closing the firms and 
making the creditors and shareholders bear the losses. For this process 
to work most efficiently, however, it is essential that legal and 
policy reforms are adopted in key foreign jurisdictions so that the 
cross-border operations of the covered financial company can be 
liquidated consistently, cooperatively, and in a manner that maximizes 
their value and minimizes the costs and negative effects on the 
financial system. The key reforms involve recognition in the foreign 
legal and regulatory systems where the FDIC would control the company's 
assets and operations; and that the FDIC would have the authority, 
subject to appropriate assurances that the FDIC will meet ongoing 
commitments, to continue the covered financial company's operations to 
facilitate an orderly wind-down of the company. Through the framework 
provided by the Dodd-Frank Act, the FDIC is working to facilitate these 
reforms and is engaged with foreign regulators in the work required to 
improve cooperation and ensure a much better process is implemented in 
any future liquidation involving a cross-border company.

II. The Proposed Rule

    Section 209 of the Dodd-Frank Act authorizes the FDIC, in 
consultation with the Financial Stability Oversight Council, to 
prescribe such rules and regulations as the FDIC considers necessary or 
appropriate to implement Title II. Section 209 also provides that, to 
the extent possible, the FDIC shall seek to harmonize such rules and 
regulations with the insolvency laws that would otherwise apply to a 
covered financial company. The purpose of the Proposed Rule is to 
provide guidance on certain key issues in order to provide clarity and 
certainty to the financial industry and to ensure that the liquidation 
process under Title II reflects the Dodd-Frank Act's mandate of 
transparency in the liquidation of failing systemic financial 
companies. In this notice of proposed rulemaking, the FDIC also is 
posing broad and specific questions to solicit public comment on 
potential additional issues that may require clarification in a broader 
notice of proposed rulemaking in the future.
    The Proposed Rule addresses discrete issues within the following 
broad areas:
    (1) The priority of payment to creditors (by defining categories of 
creditors who shall not receive any additional payments under section 
210(b)(4), (d)(4), and (h)(5)(E));
    (2) The authority to continue operations by paying for services 
provided by employees and others (by clarifying the payment for 
services rendered under personal services contracts);
    (3) The treatment of creditors (by clarifying the measure of 
damages for contingent claims); and
    (4) The application of proceeds from the liquidation of 
subsidiaries (by reiterating the current treatment under corporate and 
insolvency law that remaining shareholder value is paid to the 
shareholders of any subsidiary).

Section-by-Section Analysis

    Definitions. Section 380.1 of the Proposed Rule provides that the 
terms ``bridge financial company,'' ``Corporation,'' ``covered 
financial company,'' ``covered subsidiary,'' ``insurance company,'' and 
``subsidiary'' would have the same meanings as in the Dodd-Frank Act.
    Treatment of Similarly Situated Creditors. The Dodd-Frank Act 
permits the FDIC to pay certain creditors of a receivership more than 
similarly situated creditors if it is necessary to: (1) ``Maximize the 
value of the assets''; (2) initiate and continue operations ``essential 
to implementation of the receivership and any bridge financial 
company''; (3) ``maximize the present value return from the sale or 
other disposition of the assets''; or (4) ``minimize the amount of any 
loss'' on sale or other disposition. The appropriate comparison for any 
additional payments received by some, but not all, creditors similarly 
situated is the amount that the creditors should have received under 
the priority of expenses and unsecured claims defined in Section 210(b) 
and other applicable law. In addition, the Dodd-Frank Act requires that 
all creditors of a class must receive no less than what they would have 
received in a case under Chapter 7 of the Bankruptcy Code. See section 
210(d)(2)(B).
    These provisions parallel authority the FDIC has long had under the 
Federal Deposit Insurance Act to continue operations after the closing 
of failed insured banks if necessary to maximize the value of the 
assets in order to achieve the ``least costly'' resolution or to 
prevent ``serious adverse effects on economic conditions or financial 
stability.'' 12 U.S.C. 1821(d) and 1823(c). As is well illustrated by 
comparisons with some liquidations under the Bankruptcy Code, the 
inability to continue potentially valuable business operations can 
seriously impair the recoveries of creditors and increase the costs of 
the insolvency. In bank resolutions under the ``least costly'' 
requirement of the Federal Deposit Insurance Act, many institutions 
purchasing failed bank operations have paid a premium to acquire all 
deposits because of the recognized value attributable to acquiring 
ongoing depositor relationships. In those cases, the sale of all 
deposits to the acquiring institutions has maximized recoveries and 
minimized losses consistent with the ``least costly'' requirement.
    The ability to maintain essential operations under the Dodd-Frank 
Act would be expected to similarly minimize losses and maximize 
recoveries in any liquidation, while avoiding a disorderly collapse. 
Examples of operations that may be essential to the implementation of 
the receivership or a bridge financial company include the payment of 
utility and other service contracts and contracts with companies that 
provide payments processing services. These and other contracts will 
allow the bridge company to preserve and maximize the value of the 
bridge financial company's assets and operations to the benefit of 
creditors, while preventing a disorderly and more costly collapse.
    To clarify the application of these provisions and to ensure that 
certain categories of creditors cannot expect additional payments, 
Sec.  380.2 of the Proposed Rule would define certain categories of 
creditors who never satisfy this requirement. Specifically, this 
section would put creditors of a potential covered financial company on 
notice that bond holders of such an entity that hold certain unsecured 
senior debt with a term of more than 360 days will not receive 
additional payments compared to other general creditors such as general 
trade creditors or any general or senior liability of the covered 
financial company, nor will exceptions be made for favorable treatment 
of holders of subordinated debt, shareholders or other equity holders. 
The rule focuses on long-term unsecured senior debt (i.e., debt 
maturing more than 360 days after issuance) in order to distinguish 
bondholders from commercial lenders or other providers of financing who 
have made lines of credit available to the covered financial company 
that are

[[Page 64178]]

essential for its continued operation and orderly liquidation.
    The treatment of long-term unsecured senior debt under the Proposed 
Rule is consistent with the existing treatment of such debt in bank 
receiverships. The FDIC has long had the authority to make additional 
payments to certain creditors after the closing of an insured bank 
under the Federal Deposit Insurance Act, 12 U.S.C. 1821(i)(3), where it 
will maximize recoveries and is consistent with the ``least costly'' 
resolution requirement or is necessary to prevent ``serious adverse 
effects on economic conditions or financial stability.'' 12 U.S.C. 
1821(d) and 1823(c). In applying this authority, the FDIC has not made 
additional payments to shareholders, subordinated debt, or long-term 
senior debt holders of banks placed into receivership because such 
payments would not have helped maximize recoveries or contribute to the 
orderly liquidation of the failed banks. This experience supports the 
conclusion that the Proposed Rule appropriately clarifies that 
shareholders, subordinated debt, or long-term senior debt holders of 
future non-bank financial institutions resolved under the Dodd-Frank 
Act should never receive additional payments under the authority of 
Sections 210(b)(4), (d)(4), or (h)(5)(E).
    While the Proposed Rule would distinguish between long-term 
unsecured senior debt and shorter term unsecured debt, this distinction 
does not mean that shorter term debt will be provided with additional 
payments under sections 210(b)(4), (d)(4) or (h)(5)(E) of the Dodd-
Frank Act. As general creditors, such debt holders normally will 
receive the amount established and due under section 210(b)(1), or 
other priorities of payment specified by law. While they may receive 
additional payments under the Proposed Rule, this will be evaluated on 
a case-by-case basis and will only occur when such payments meet all of 
the statutory requirements.
    A major driver of the financial crisis and the panic experienced by 
the market in 2008 was in part due to an overreliance by many market 
participants on funding through short-term, secured transactions in the 
repurchase agreement market using volatile, illiquid collateral, such 
as mortgage-backed securities. In applying its powers under the Dodd-
Frank Act, the FDIC must exercise a great deal of caution in valuing 
such collateral and will review the transaction to ensure it is not 
under-collateralized. Under applicable law, if the creditor is under-
secured due to a drop in the value of such collateral, the unsecured 
portion of the claim will be paid as a general creditor claim. In 
contrast, if the collateral consists of U.S. Treasury securities or 
other government securities as collateral, the FDIC will value these 
obligations at par.
    This provision must also be considered in concert with the express 
provisions of section 203(c)(3)(A)(vi). This subsection requires a 
report to Congress not later than 60 days after appointment of the FDIC 
as receiver for a covered financial company specifying ``the identity 
of any claimant that is treated in a manner different from other 
similarly situated claimants,'' the amount of any payments and the 
reason for such action. In addition, the FDIC must post this 
information on a Web site maintained by the FDIC. These reports must be 
updated ``on a timely basis'' and no less frequently than quarterly. 
This information will provide other creditors with full information 
about such payments in a timely fashion that will permit them to file a 
claim asserting any challenges to the payments. The Dodd-Frank Act also 
includes the power to ``claw-back'' or recoup some or all of any 
additional payments made to creditors if the proceeds of the sale of 
the covered financial company's assets are insufficient to repay any 
monies drawn by the FDIC from Treasury during the liquidation. 12 
U.S.C. 5390(o)(1)(D). This provision underscores the importance of a 
strict application of the authority provided in sections 210(b)(4), 
(d)(4), and (h)(5)(E) of the Dodd-Frank Act and will help ensure that 
if there is any shortfall in proceeds of sale of the assets the 
institution's creditors will be assessed before the industry as a 
whole. Most importantly, under no circumstances in a Dodd-Frank 
liquidation will taxpayers ever be exposed to loss.
    The Proposed Rule would expressly distinguish between ongoing 
credit relationships with lenders who have provided lines of credit 
that are necessary for maintaining ongoing operations. Under section 
210(c)(13)(D) of the Dodd-Frank Act, the FDIC can enforce lines of 
credit to the covered financial company and agree to repay the lender 
under the credit agreement. In some cases such lines of credit may be 
an integral part of key operations and be essential to help the FDIC 
maximize the value of the failed company's assets and operations. In 
such cases, it may be more efficient to continue such lines of credit 
and, if appropriate, reduce the demands for funding from the Orderly 
Liquidation Fund.
    Personal Services Agreements. Section 380.3 of the Proposed Rule 
concerns personal services agreements, which would include, without 
limitation, collective bargaining agreements. Like other contracts with 
the covered financial company, a personal services agreement would be 
subject to repudiation by the receiver if the agreement is determined 
to be burdensome and its repudiation would promote the orderly 
liquidation of the company. Prior to determining whether to repudiate, 
however, the FDIC as receiver may need to utilize the services of 
employees who have a personal services agreement with the covered 
financial company. The Proposed Rule would provide that if the FDIC 
accepts services from employees during the receivership or any period 
where some or all of the operations of the covered financial company 
are continued by a bridge financial company, those employees would be 
paid according to the terms and conditions of their personal service 
agreement and such payments would be treated as an administrative 
expense of the receiver. The acceptance of services from the employees 
by the FDIC as receiver (or by a bridge financial company) would not 
impair the receiver's ability subsequently to repudiate a personal 
services agreement.\5\ The Proposed Rule also would make clear that a 
personal service agreement would not continue to apply to employees in 
connection with a sale or transfer of a subsidiary or the transfer of 
certain operations or assets of the covered financial company unless 
the acquiring party expressly agrees to assume the personal service 
agreement. Likewise, the transfer would not be predicated on such 
assumption. Subparagraph (e) of Sec.  380.3 would make clear that the 
provision for payment of employees would not apply to senior executives 
or directors of the covered financial company,\6\ nor would it impair 
the ability of the receiver to recover compensation previously paid to 
senior executives or directors under section 210(s) of the Dodd-Frank 
Act. The definition of ``senior executive'' in this section 
substantially follows the

[[Page 64179]]

definition of ``executive officer'' in Regulation O of the Board of 
Governors of the Federal Reserve System (12 CFR 215.2). This definition 
is commonly understood and accepted.
---------------------------------------------------------------------------

    \5\ In this regard, the Proposed Rule is consistent with the 
Federal Deposit Insurance Act regarding the treatment of personal 
service contracts (see 12 U.S.C. 1821(e)(7)).
    \6\ Section 213(d) of the Dodd-Frank Act requires the FDIC and 
the Board of Governors of the Federal Reserve System, after 
consultation with the Financial Stability Oversight Council, to 
prescribe, inter alia, ``rules, regulations, or guidelines to 
further define the term ``senior executive'' for the purposes of 
that section, relating to the imposition of prohibitions on the 
participation of certain persons in the conduct of the affairs of a 
financial company. In the future, the FDIC would expect to conform 
the definition of ``senior executive'' in Sec.  380.1 of the 
Proposed Rule to the definition that is adopted in the regulation 
that is adopted pursuant to section 213(d).
---------------------------------------------------------------------------

    Contingent Obligations. Section 380.4 of the Proposed Rule would 
recognize that contingent obligations are provable under the Dodd-Frank 
Act. See section 201(a)(4), defining the term ``claim'' to include a 
right of payment that is contingent, and section 210(c)(3)(E), 
providing for damages for repudiation of a contingent obligation in the 
form of a guarantee, letter of credit, loan commitment, or similar 
credit obligation. The Proposed Rule would apply to contingent 
obligations consisting of a guarantee, letter of credit, loan 
commitment, or similar credit obligation that becomes due and payable 
upon the occurrence of a specified future event. For an obligation to 
be considered contingent, the future event (i) cannot occur by the mere 
passage of time (i.e., the arrival of a certain date on the calendar); 
(ii) cannot be made to occur (or not) by either party; and (iii) cannot 
have occurred as of the date of the appointment of the receiver. In 
addition, the FDIC holds the view that an obligation in the form of a 
guarantee or letter of credit is no longer contingent if the principal 
obligor (i.e., the party whose obligation is backed by the guarantee or 
letter of credit) becomes insolvent or is the subject of insolvency 
proceedings.
    Paragraph (b) of Sec.  380.4 would recognize that contingent claims 
may be provable against the receiver. Thus, for example, where a 
guarantee or letter of credit becomes due and payable after the 
appointment of the receiver, the receiver will not disallow a claim 
solely because the obligation was contingent as of the date of the 
appointment of the receiver.
    Paragraph (c) of Sec.  380.4 would implement section 210(c)(3)(E), 
which authorizes the FDIC to promulgate rules and regulations providing 
that damages for repudiation of a contingent guarantee, letter of 
credit, loan commitment, or similar credit obligation shall be measured 
based upon the likelihood that such contingent obligation would become 
fixed and the probable magnitude of the claim.
    Insurance Company Subsidiaries. Section 380.5 of the Proposed Rule 
would provide that where the FDIC acts as receiver for a direct or 
indirect subsidiary of an insurance company that is not an insured 
depository institution or an insurance company itself, the value 
realized from the liquidation or other resolution of the subsidiary 
will be distributed according to the priority of expenses and unsecured 
claims set forth in section 210(b)(1) of the Dodd-Frank Act. In order 
to clarify that such value will be available to the policyholders of 
the parent insurance company to the extent required by the applicable 
State laws and regulations, the Proposed Rule would expressly recognize 
the requirement that the receiver remit all proceeds due to the parent 
insurance company in accordance with the order of priority set forth in 
section 210(b)(1).
    Liens on Insurance Company Assets. Section 380.6 of the Proposed 
Rule would limit the ability of the FDIC to take liens on insurance 
company assets and assets of the insurance company's covered 
subsidiaries, under certain circumstances after the FDIC has been 
appointed receiver. Section 204 of the Dodd-Frank Act permits the FDIC 
to provide funding for the orderly liquidation of covered financial 
companies and covered subsidiaries that the FDIC determines, in its 
discretion, are necessary or appropriate by, among other things, making 
loans, acquiring debt, purchasing assets or guaranteeing them against 
loss, assuming or guaranteeing obligations, making payments, or 
entering into certain transactions. In particular, pursuant to section 
204(d)(4), the FDIC is authorized to take liens ``on any or all assets 
of the covered financial company or any covered subsidiary, including a 
first priority lien on all unencumbered assets of the covered financial 
company or any covered subsidiary to secure repayment of any 
transactions conducted under this subsection.''
    Section 203(e) provides that, in general, if an insurance company 
is a covered financial company the liquidation or rehabilitation of 
such insurance company shall be conducted as provided under the laws 
and requirements of the State, either by the appropriate State 
regulatory agency, or by the FDIC if such regulatory agency has not 
filed the appropriate judicial action in the appropriate State court 
within sixty (60) days of the date of the determination that such 
insurance company satisfied the requirements for appointment of a 
receiver under section 202(a). However, a subsidiary or affiliate 
(including a parent entity) of an insurance company, where such 
subsidiary or affiliate is not itself an insurance company, will be 
subject to orderly liquidation under Title II without regard to State 
law.
    The FDIC recognizes that the orderly liquidation of a covered 
financial company that is a covered subsidiary of, or an affiliate of, 
an insurance company should not unnecessarily interfere with the 
liquidation or rehabilitation of the insurance company under applicable 
State law, and that the interests of the policy holders in the assets 
of the insurance company should be respected. Accordingly, the FDIC is 
proposing that it will avoid taking a lien on some or all of the assets 
of a covered financial company that is an insurance company or a 
covered subsidiary or affiliate of an insurance company unless it makes 
a determination, in its sole discretion, that taking such a lien is 
necessary for the orderly liquidation of the company (or subsidiary or 
affiliate) and will not unduly impede or delay the liquidation or 
rehabilitation of such insurance company, or the recoveries by its 
policyholders. Subsection (b) of Sec.  380.6 makes clear that no 
restriction on taking a lien on assets of a covered financial company 
or any covered subsidiary or affiliate would limit or restrict the 
ability of the FDIC or the receiver to take a lien on such assets in 
connection with the sale of such entities or any of their assets on a 
financed basis to secure any financing being provided in connection 
with such sale.

IV. Request for Comments

    The FDIC requests comments on all aspects of the Proposed Rule. All 
comments and responses to the following questions on the Proposed Rule 
must be received by the FDIC not later than November 18, 2010. The FDIC 
specifically requests comments on the following specific questions:
    1. Should ``long-term senior debt'' be defined in reference to a 
specific term, such as 270 or 360 days or some different term, or 
should it be defined through a functional definition?
    2. Is the description of ``partially funded, revolving or other 
open lines of credit'' adequately descriptive? Is there a more 
effective definition that could be used? If so, what and how is it more 
effective?
    3. Should there be further limits to additional payments or credit 
amounts that can be provided to shorter term general creditors? Are 
there further limits that should be applied to ensure that any such 
payments maximize value, minimize losses, or are to initiate and 
continue operations essential to the implementation of the receivership 
or any bridge financial company? If so, what limits should be applied 
consistent with other applicable provisions of law?
    4. Under the Proposed Rule, the FDIC's Board of Directors must 
determine to make additional payments or credit amounts available to 
shorter term general creditors only if such payments or credits meet 
the standards

[[Page 64180]]

specified in 12 U.S.C. 5390(b)(4), (d)(4), and (h)(5)(E). Should 
additional requirements be imposed on this decision-making process for 
the Board? Should a super-majority be required?
    5. Under the Dodd-Frank Act, secured creditors will be paid in full 
up to the extent of the pledged collateral and the proposed rule 
specifies that direct obligations of, or that are fully guaranteed by, 
the United States or any agency of the United States shall be valued 
for such purposes at par value. How should other collateral be valued 
in determining whether a creditor is fully secured or partially 
secured?
    6. During periods of market disruption, the liquidation value of 
collateral may decline precipitously. Since creditors are normally held 
to a duty of commercially reasonable disposition of collateral [Uniform 
Commercial Code], should the FDIC adopt a rule governing valuation of 
collateral other than United States or agency collateral? Would a 
valuation based on a rolling average prices, weighted by the volume of 
sales during the month preceding the appointment of the receiver, 
provide more certainty to valuation of other collateral? Would that 
help reduce the incentives to quickly liquidate collateral in a crisis?
    7. Are changes necessary to the provisions of proposed Section 
380.3 through 380.6? What other specific issues addressed in these 
sections should be addressed in the proposed rule or in future proposed 
rules?
    In addition, the FDIC specifically requests responses to the 
following questions. Written responses to the specific questions posed 
by the FDIC must be received by the FDIC not later than January 18, 
2011.
    1. What other specific areas relating to the FDIC's orderly 
liquidation authority under Title II would benefit from additional 
rulemaking?
    2. Section 209 of the Dodd-Frank Act requires the FDIC, ``[t]o the 
extent possible,'' ``to harmonize applicable rules and regulations 
promulgated under this section with the insolvency laws that would 
otherwise apply to a covered financial company.'' What are the key 
areas of Title II that may require additional rules or regulations in 
order to harmonize them with otherwise applicable insolvency laws? In 
your answer, please specify the source of insolvency laws to which you 
are making reference.
    3. With the exception of the special provisions governing the 
liquidation of covered brokers and dealers (see section 205), are there 
different types of covered financial companies that require different 
rules and regulations in the application of the FDIC's powers and 
duties?
    4. Section 210 specifies the powers and duties of the FDIC acting 
as receiver under Title II. Are regulations necessary to define how 
these specific powers should be applied in the liquidation of a covered 
company?
    5. Should the FDIC adopt regulations to define how claims against 
the covered financial company and the receiver are determined under 
section 210(a)(2)? What specific elements of this process require 
clarification?
    6. Should the FDIC adopt regulations governing the avoidable 
transfer provisions of section 210(a)(11)? What are the most important 
issues to address for the fraudulent transfer provisions? What are the 
most important issues to address for the preferential transfers 
provisions? How should these issues be addressed?
    7. What are the key issues that should be addressed to clarify the 
application of the setoff provisions in section 210(a)(12)? How should 
these issues be addressed?
    8. Do the provisions governing the priority of payments of expenses 
and claims in section 210(b) and other sections require clarification? 
If so, what are the key issues to clarify in any regulation?
    9. Section 210(b)(4), (d)(4), and (h)(5)(E) address potential 
payments to creditors ``similarly situated'' that are addressed in this 
Proposed Rule. Are there additional issues on the application of this 
provision, or related provisions, that require clarification in a 
regulation?
    10. Section 210(h) provides the FDIC with authority to charter a 
bridge financial company to facilitate the liquidation of a covered 
financial company. What issues surrounding the chartering, operation, 
and termination of a bridge company would benefit from a regulation? 
How should those issues be addressed?
    11. Regarding actual direct compensatory damages for the 
repudiation of a contingent obligation in the form of a guarantee, 
letter of credit, loan commitment, or similar credit obligation, should 
the Proposed Rule be amended to specifically provide a method for 
determining the estimated value of the claim? In addition to the 
statutory considerations in valuation, including the likelihood that 
the contingent claim would become fixed and its probable magnitude, 
what other factors are appropriate? If so, what methods for determining 
such estimated value would be appropriate? Should the regulation 
provide more detail on when a claim is contingent?
    12. Are the provisions of the Dodd-Frank Act relating to the 
classification of claims as administrative expenses of the receiver 
sufficiently clear, or is additional rulemaking necessary to clarify 
such classification?
    13. Should the Proposed Rule's definition of ``long-term senior 
debt'' be clarified or amended?

V. Regulatory Analysis and Procedure

A. Paperwork Reduction Act

    The Proposed Rule would establish internal rules and procedures for 
the liquidation of a failed systemically important financial company. 
It would not involve any new collections of information pursuant to the 
Paperwork Reduction Act (44 U.S.C. 3501 et seq.). Consequently, no 
information collection has been submitted to the Office of Management 
and Budget for review.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires an agency that is issuing a 
final rule to prepare and make available a regulatory flexibility 
analysis that describes the impact of the final rule on small entities. 
(5 U.S.C. 603(a)). The Regulatory Flexibility Act provides that an 
agency is not required to prepare and publish a regulatory flexibility 
analysis if the agency certifies that the final rule will not have a 
significant impact on a substantial number of small entities.
    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
FDIC certifies that the Proposed Rule will not have a significant 
impact on a substantial number of small entities. The Proposed Rule 
would clarify rules and procedures for the liquidation of a failed 
systemically important financial company, which will provide internal 
guidance to FDIC personnel performing the liquidation of such a company 
and will address any uncertainty in the financial system as to how the 
orderly liquidation of such a company would operate. As such, the 
Proposed Rule would not impose a regulatory burden on entities of any 
size and does not significantly impact small entities.

C. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the Proposed Rule will not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681).

[[Page 64181]]

E. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471), requires the Federal banking agencies to use plain 
language in all proposed and final rules published after January 1, 
2000. The FDIC has sought to present the Proposed Rule in a simple and 
straightforward manner. The FDIC invites comments on whether the 
Proposed Rule is clearly stated and effectively organized and how the 
FDIC might make the final rule on this subject matter easier to 
understand.

List of Subjects in 12 CFR Part 380

    Holding companies, Insurance companies.

    For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation proposes to amend title 12 of the Code of 
Federal Regulations by adding new part 380 to read as follows:

PART 380--ORDERLY LIQUIDATION AUTHORITY

Sec.
380.1 Definitions.
380.2 Treatment of similarly situated claimants.
380.3 Treatment of personal service agreements.
380.4 Provability of claims based on contingent obligations.
380.5 Treatment of covered financial companies that are subsidiaries 
of insurance companies.
380.6 Limitation on liens on assets of covered financial companies 
that are insurance companies or covered subsidiaries of insurance 
companies.

    Authority: 12 U.S.C. 5301 et seq.


Sec.  380.1  Definitions.

    As used in this part, the terms ``bridge financial company,'' 
``Corporation,'' ``covered financial company,'' ``covered subsidiary,'' 
``insurance company,'' and ``subsidiary'' have the same meanings as in 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 
U.S.C. 5301 et seq.).


Sec.  380.2  Treatment of similarly situated claimants.

    (a) For the purposes of this section, the term ``long-term senior 
debt'' means senior debt issued by the covered financial company to 
bondholders or other creditors that has a term of more than 360 days. 
It does not include partially funded, revolving or other open lines of 
credit that are necessary to continuing operations essential to the 
receivership or any bridge financial company, nor to any contracts to 
extend credit enforced by the receiver under 12 U.S.C. 5390(c)(13)(D).
    (b) In applying any provision of the Act permitting the Corporation 
to exercise its discretion, upon appropriate determination, to make 
payments or credit amounts, pursuant to 12 U.S.C. 5390(b)(4), (d)(4), 
or (h)(5)(E) to or for some creditors but not others similarly situated 
at the same level of payment priority, the Corporation shall not 
exercise such authority in a manner that would result in the following 
recovering more than the amount established and due under 12 U.S.C. 
5390(b)(1), or other priorities of payment specified by law:
    (1) Holders of long-term senior debt who have a claim entitled to 
priority of payment at the level set out under 12 U.S.C. 5390(b)(1)(E);
    (2) Holders of subordinated debt who have a claim entitled to 
priority of payment at the level set out under 12 U.S.C. 5390(b)(1)(F);
    (3) Shareholders, members, general partners, limited partners, or 
other persons who have a claim entitled to priority of payment at the 
level set out under 12 U.S.C. 5390(b)(1)(H); or
    (4) Other holders of claims entitled to priority of payment at the 
level set out under 12 U.S.C. 5390(b)(1)(E) unless the Corporation, 
through a vote of the members of the Board of Directors then serving 
and in its sole discretion, specifically determines that additional 
payments or credit amounts to such holders are necessary and meet all 
of the requirements under 12 U.S.C. 5390(b)(4), (d)(4), or (h)(5)(E), 
as applicable. The authority of the Board to make the foregoing 
determination cannot be delegated.
    (c) Proven claims secured by a legally valid and enforceable or 
perfected security interest or security entitlement in any property or 
other assets of the covered financial company shall be paid or 
satisfied in full to the extent of such collateral, but any portion of 
such claim which exceeds an amount equal to the fair market value of 
such property or other assets shall be treated as an unsecured claim 
and paid in accordance with the priorities established in 12 U.S.C. 
5390(b) and otherwise applicable provisions. Proven claims secured by 
such security interests or security entitlements in securities that are 
direct obligations of, or that are fully guaranteed by, the United 
States or any agency of the United States shall be valued for such 
purposes at par value.


Sec.  380.3  Treatment of personal service agreements.

    (a) Definitions. (1) The term ``personal service agreement'' means 
a written agreement between an employee and a covered financial 
company, covered subsidiary or a bridge financial company setting forth 
the terms of employment. This term also includes an agreement between 
any group or class of employees and a covered financial company, 
covered subsidiary or a bridge financial company, including, without 
limitation, a collective bargaining agreement.
    (2) The term ``senior executive'' means for purposes of this 
section, any person who participates or has authority to participate 
(other than in the capacity of a director) in major policymaking 
functions of the company, whether or not: the person has an official 
title; the title designates the officer an assistant; or the person is 
serving without salary or other compensation. The chairman of the 
board, the president, every vice president, the secretary, and the 
treasurer or chief financial officer, general partner and manager of a 
company are considered executive officers, unless the person is 
excluded, by liquidation of the board of directors, the bylaws, the 
operating agreement or the partnership agreement of the company, from 
participation (other than in the capacity of a director) in major 
policymaking functions of the company, and the person does not actually 
participate therein.
    (b)(1) If before repudiation or disaffirmance of a personal service 
agreement, the Corporation as receiver of a covered financial company, 
or the Corporation as receiver of a bridge financial company accepts 
performance of services rendered under such agreement, then:
    (i) The terms and conditions of such agreement shall apply to the 
performance of such services; and
    (ii) Any payments for the services accepted by the Corporation as 
receiver shall be treated as an administrative expense of the receiver.
    (2) If a bridge financial company accepts performance of services 
rendered under such agreement, then the terms and conditions of such 
agreement shall apply to the performance of such services.
    (c) No party acquiring a covered financial company or any 
operational unit, subsidiary or assets thereof from the Corporation as 
receiver or from any bridge financial company shall be bound by a 
personal service agreement unless the acquiring party expressly assumes 
the personal services agreement.
    (d) The acceptance by the Corporation as receiver for a covered 
financial company, by any bridge financial company or the Corporation 
as receiver of a bridge financial company of services subject to a 
personal service agreement shall not limit or impair the

[[Page 64182]]

authority of the Corporation as receiver to disaffirm or repudiate any 
personal service agreement in the manner provided for the disaffirmance 
or repudiation of any agreement under 12 U.S.C. 5390.
    (e) Paragraph (b) of this section shall not apply to any personal 
service agreement with any senior executive or director of the covered 
financial company or covered subsidiary, nor shall it in any way limit 
or impair the ability of the receiver to recover compensation from any 
senior executive or director of a failed financial company under 12 
U.S.C. 5390.


Sec.  380.4  Provability of claims based on contingent obligations.

    (a) This section only applies to contingent obligations of the 
covered financial company consisting of a guarantee, letter of credit, 
loan commitment, or similar credit obligation that becomes due and 
payable upon the occurrence of a specified future event (other than the 
mere passage of time), which:
    (1) Is not under the control of either the covered financial 
company or the party to whom the obligation is owed; and
    (2) Has not occurred as of the date of the appointment of the 
receiver.
    (b) A claim based on a contingent obligation of the covered 
financial company may be provable against the receiver notwithstanding 
the obligation not having become due and payable as of the date of the 
appointment of the receiver.
    (c) If the receiver repudiates a guarantee, letter of credit, loan 
commitment, or similar credit obligation that is contingent as of the 
date of the receiver's appointment,