Orderly Liquidation Authority Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 4207-4216 [2011-1379]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 76, Number 16 (Tuesday, January 25, 2011)]
[Rules and Regulations]
[Pages 4207-4216]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-1379]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 380


Orderly Liquidation Authority Provisions of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Interim final rule.

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SUMMARY: The FDIC is issuing an interim final rule (``Rule''), with 
request for comments, which implements 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''). The FDIC's purpose in issuing this Rule is to provide 
greater clarity and certainty about how key components of this 
authority will be implemented and to

[[Page 4208]]

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: This rule is effective January 25, 2011. Written comments on the 
Rule must be received by the FDIC not later than March 28, 2011.

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: Marc Steckel, Division of Insurance 
and Research, 202-898-3618; 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 authorities 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 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 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. 1813(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. If the Secretary determines that 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 
consequences 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 consents to the 
appointment, then the FDIC's appointment as receiver is effective 
immediately. If the company's governing body does not 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

[[Page 4209]]

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 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 sections 210(h)(3)(B) and 716. 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 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 closing. In addition, creditors also are 
guaranteed that they will receive no less than they would have received 
if the covered financial company had been liquidated under Chapter 7 of 
the Bankruptcy Code. See section 210(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 Rule is to begin the implementation 
of this mandate in certain key areas. Of particular significance is 
Sec.  380.2 of the 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 Rule, is making clear that these 
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. Under the Dodd-Frank 
Act, this 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 led to the 
failure of the covered financial company. 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.
    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, derivatives contracts that are needed to continue operations can 
be transferred to the bridge and cannot be terminated and netted by 
counterparties. This is an important tool to avoid market 
destabilization because, unlike the Bankruptcy Code, it can prevent the 
immediate and disorderly liquidation of collateral during a period of 
market distress. 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

[[Page 4210]]

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 380.3 of the 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 the essential continuity of key operations in 
the bridge financial company is the availability of funding for those 
operations. The Dodd-Frank 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.
    An essential prerequisite for any effective resolution--
particularly one designed to avoid a disorderly collapse--is advance 
planning, a well-developed resolution plan, and access to the 
supporting information needed to undertake such planning. This 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). Such plans 
are not for the purpose of supervision, which is the responsibility of 
the primary federal regulator and the Federal Reserve Board as 
designated, but for evaluation of the company's resolution plans and 
for the FDIC's resolution planning, readiness, and analysis of how best 
to be prepared for any necessary resolution. An essential part of such 
plans will be to describe how the resolution 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 increasingly stringent requirements to be 
imposed 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 will jointly adopt a rule with the 
Federal Reserve to implement the resolution plan requirements of the 
Dodd-Frank Act. The undertaking to ensure that adequate information is 
available and that feasible resolution plans are established is 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 Stability Oversight 
Council to ensure a credible liquidation process that realizes the goal 
of ending ``too big to fail'' while enhancing market discipline.

II. The Notice of Proposed Rulemaking

    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. On October 19, 2010 (75 FR 64173), the FDIC 
caused to be published in the Federal Register a Notice of Proposed 
Rulemaking Implementing Certain Orderly Liquidation Authority 
Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (``Proposed Rule''). The Proposed Rule addressed 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) or (d)(4));
    (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).
    The NPR solicited public comment on the proposed rule for a period 
of 30 days. The NPR also contained a general overview of the orderly 
liquidation process under Title II of the Dodd-Frank Act and solicited 
for a 90-day period any comments that would be more broadly related to 
the implementation of Title II. These comments will be considered in 
connection with additional rulemaking in the future.
    During the 30-day comment period for comments specifically with 
regard to the Proposed Rule, the FDIC received 27 comment letters and 
held two meetings with various industry representatives and trade 
associations. The comments generally expressed support for the FDIC's 
efforts to promulgate rules for implementing the orderly liquidation 
authority of Title II. A majority of comments related to matters beyond 
the scope of the Proposed Rule, indicating the need for additional 
rulemaking in the future. Other comments, however, addressed specific 
facets of the Proposed Rule. Many commenters requested additional time 
to comment on various provisions of the Proposed Rule, and recommended 
that the FDIC delay issuing a final rule in order to permit additional 
comments and further consideration. The FDIC believes that additional 
comments would be helpful in refining certain aspects of the regulation 
and therefore is issuing the Rule at this time as an interim final 
rule, with request for comments. This action will provide the certainty 
of a final regulation, while permitting the FDIC to solicit and obtain 
additional comments that may serve as the basis for further 
clarification of certain issues and revision of the Rule, if necessary.
    Comments on specific aspects of the Proposed Rule are addressed in 
the following discussion of the Rule.

[[Page 4211]]

III. The Rule

    Definitions. Section 380.1 of the Rule gives the terms ``bridge 
financial company,'' ``Corporation,'' ``covered financial company,'' 
``covered subsidiary,'' and ``insurance company'' the same meanings 
these terms are given in the Dodd-Frank Act. No comments were received 
on this section of the Proposed Rule.
    Treatment of Similarly Situated Creditors. Sections 210(b)(4), 
(d)(4), and (h)(5)(E) of the Dodd-Frank Act permits the FDIC to pay 
certain creditors of a receivership more than similarly situated 
creditors if it is necessary (1) to ``maximize the value of the 
assets''; (2) to initiate and continue operations ``essential to 
implementation of the receivership and any bridge financial company''; 
(3) to ``maximize the present value return from the sale or other 
disposition of the assets''; or (4) to ``minimize the amount of any 
loss'' on sale or other disposition. In addition, section 210(d)(4) 
permits the FDIC to make additional payments to certain creditors if it 
is determined that such payments are necessary or appropriate to 
minimize losses from the orderly liquidation of the covered financial 
company. 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 Chapter 7 proceeding under the Bankruptcy Code.
    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 marketplace. 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.
    Other creditors who do not receive such ``additional payments,'' 
but who are within the same statutory priority for payment as creditors 
receiving ``additional payments,'' will receive payment under section 
210(b)(1), or other priorities of payment specified by law. The fact 
that additional payments to a limited group of creditors are permitted 
under the strict standards provided by section 210(b)(4), (d)(4), and 
(h)(5)(E) of the Dodd-Frank Act and the Rule does not entitle other 
similarly situated creditors to payments in excess of those provided 
under their statutory priority. At a minimum, such creditors must 
receive no less than the creditor would have received under Chapter 7 
of the Bankruptcy Code or any similar provision of state insolvency law 
applicable to the covered financial company. Sections 210(b)(7)(B) and 
(d)(2).
    To clarify the application of these provisions and to ensure that 
certain categories of creditors cannot expect additional payments under 
them, Sec.  380.2 of the Rule defines certain categories of creditors 
who never satisfy this requirement. Specifically, this section puts 
creditors of a potential covered financial company on notice that 
creditors of a covered financial company who hold certain unsecured 
senior debt with a term of more than 360 days will not be given 
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 may be essential for its continued operation and orderly 
liquidation.
    The treatment of long-term unsecured senior debt under the 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 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 Rule distinguishes between long-term unsecured senior 
debt and shorter term unsecured debt, this distinction does not mean 
that shorter term debt would be provided with additional payments under 
sections 210(b)(4), (d)(4), or 210(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 holders of shorter term debt may 
receive additional payments, this will be evaluated on a case-by-case 
basis and will only occur when such payments meet all of the statutory 
requirements. Under the Rule, the Board must specifically determine 
that additional payments or credit amounts to such holders are 
necessary and meet all of the requirements under sections 210(b)(4), 
(d)(4), or (h)(5)(E), as applicable. The Board's authority to make this 
decision cannot be delegated to management or staff of the FDIC. By 
requiring a vote by the Board, the Rule requires a decision on the 
record and ensures 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

[[Page 4212]]

financial company, to maximize the value of the assets or returns from 
sale, or to minimize losses.
    Much of the commenters' concern regarding the Proposed Rule's 
provision not to pay long-term debt holders any more than the amount 
they would have received if the company were liquidated under chapter 7 
of the Bankruptcy Code appears to be based on the misapprehension that 
this provision makes it more likely that short-term debt holders will 
receive additional payments. Under the standards of the Dodd-Frank Act, 
and the Rule, that concern is unwarranted. Short-term debt holders 
(including, without limitation, holders of commercial paper and 
derivatives counterparties) are highly unlikely to meet the criteria 
set forth in the statute for permitting payment of additional amounts. 
In virtually all cases, creditors with shorter-term claims on the 
covered financial company will receive the same pro rata share of their 
claim that is being provided to the long-term debt holders. 
Accordingly, a potential credit provider to a company subject to the 
Dodd-Frank resolution process should have no expectation of treatment 
that differs depending upon whether it lends for a period of over 360 
days or for a shorter term.
    These provisions illustrate that `additional payments' to any 
creditor will be very rare. Possible examples of creditors who might 
receive additional payments, in addition to essential and necessary 
service providers noted above, could include creditors with contract 
claims that are tied to performance bonds or other credit support 
needed for the covered financial company to qualify to continue other 
valuable contracts. Where continuation of those valuable contracts will 
meet the standards specified in sections 210(b)(4), (d)(4), or 
(h)(5)(E), as applicable, additional payments to the other creditors 
may also meet those standards if essential to maintain the requisite 
performance bonds or credit support agreements. These examples are not 
binding on the FDIC as receiver and serve to illustrate the exceeding 
rarity of any permissible additional payments.
    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. See section 210(o)(1)(D). The ``claw-back'' provision 
only applies if the liquidation proceeds of the covered financial 
company are insufficient to fully repay any monies received from 
Treasury in the liquidation. This requirement is subject to an 
exception for ``payments or amounts necessary to initiate and continue 
operations essential to implementation of the receivership or any 
bridge financial company* * *'' It is highly unlikely that payments to 
short-term lenders would be found to qualify for such an exemption. A 
possible example of payments not subject to the ``claw-back'' 
provisions might be payments to trade creditors, such as a payment 
necessary to ensure that a vendor is able to continue to provide the 
failed company with essential software or hardware that could not be 
replicated, or payments to a utility with a local monopoly.
    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 Rule expressly acknowledges the potential importance of 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.
    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 market using volatile, illiquid collateral, such as 
mortgage-backed securities. In applying its powers under the Dodd-Frank 
Act, the FDIC must exercise care 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 decline in 
the value of such collateral, the unsecured portion of the claim will 
be paid as a general creditor claim.
    Section 380.2 of the Proposed Rule also clarified that any portion 
of a claim secured by a legally valid and enforceable security interest 
that exceeds the fair market value of the collateral shall be treated 
as an unsecured claim and paid in accordance with the order of priority 
established under section 210(b)(1) of the Dodd-Frank Act. The Proposed 
Rule noted that collateral consisting of direct or fully guaranteed 
obligations of the United States or any agency of the United States 
(``government securities'') would be valued at par. Commenters 
expressed concern about the process for valuation of collateral for the 
purpose of determining whether a creditor is wholly or partly secured. 
Upon consideration of these comments, the FDIC concludes that all 
collateral, including government securities, should be valued at fair 
market value. We believe that a fair market value determination will 
provide crucial certainty in the valuation of this collateral. In the 
same vein, the FDIC believes that the establishment of a clear date for 
determining the value of securities or other assets that constitute 
valid security for a proven claim will provide potential claimants 
greater certainty when determining what portion of a claim may be 
secured, or unsecured if under-collateralized. In some circumstances of 
great market volatility, it may be appropriate to determine the value 
of collateral based on fair market values existing on the day prior to 
the appointment of the FDIC as receiver. The FDIC is soliciting 
comments on this issue. The Rule establishes that the FDIC will use the 
fair market value of collateral as of the date that the FDIC was 
appointed as receiver. The provision in the Proposed Rule that the fair 
market value of government issued or government guaranteed securities 
shall be deemed to be par value has been eliminated in the Rule.
    Personal Services Agreements. Section 380.3 of the Rule concerns 
personal services agreements, which may include, without limitation, 
collective bargaining agreements. Like other contracts with the covered 
financial company, a personal services agreement is subject to 
repudiation by

[[Page 4213]]

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 Rule provides 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, absent a contrary 
agreement or consent by the employee, those employees shall be paid 
according to the terms and conditions of their personal service 
agreement and such payments shall 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) does not 
impair the receiver's ability subsequently to repudiate a personal 
services agreement.\5\ The Rule will also not impair the ability of the 
receiver to reach an agreement with the employee that is more favorable 
to the FDIC than the original personal services agreement. The Rule 
also clarifies that a personal service agreement will 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 will 
not be predicated on such assumption. Paragraph (e) of Sec.  380.3 
clarifies that the provision for payment of employees does not apply to 
senior executives or directors of the covered financial company,\6\ nor 
does 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 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 will conform the 
definition of ``senior executive'' in Sec.  380.3 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 Rule addresses the 
treatment of contingent claims in the receivership of a covered 
financial company. The text of the Proposed Rule was revised in the 
Rule in response to comments recommending that the rule eliminate any 
ambiguity regarding the treatment of contingent claims. The revised 
text strengthens the Rule to make clear that the treatment of 
contingent claims under Title II parallels their treatment under the 
Bankruptcy Code. The text of the Proposed Rule also has been slightly 
modified in the Rule in order to more precisely follow the text of 
section 210(c)(3)(E) of the Dodd-Frank Act, which it will implement.
    Under Sec.  380.4, holders of contingent claims should expect to 
receive no less than the amount they would have received had the 
covered financial company had been a debtor in a case under chapter 7 
of the U.S. Bankruptcy Code. Like the Bankruptcy Code, the Dodd-Frank 
Act defines the term ``claim'' to include a right to payment that is 
contingent (see 11 U.S.C. 101(5); section 201(a)(4)). Accordingly, 
paragraph (a) of Sec.  380.4 affirms that that the FDIC as receiver of 
a covered financial company shall not disallow a claim solely because 
the claim is based on an obligation that was contingent as of the date 
of the appointment of the receiver. The Bankruptcy Code requires the 
estimation of any claim the liquidation of which would unduly delay the 
administration of the estate, such as a contingent claim (see 11 U.S.C. 
502(c)). Similarly, paragraph (a) of Sec.  380.4 provides that to the 
extent that an obligation is contingent, the receiver shall estimate 
the value of the claim, as such value is measured based upon the 
likelihood that the contingent obligation would become fixed and the 
probable magnitude of the claim. The Bankruptcy Code does not specify 
when a contingent claim should be estimated, however. The FDIC is 
soliciting additional comments regarding whether the receiver should 
designate a specific time during the term of the receivership to 
estimate contingent claims.
    Paragraph (b) of Sec.  380.4 implements section 210(c)(3)(E) of the 
Dodd-Frank Act, which provides that the FDIC may prescribe by rule or 
regulation that actual direct compensatory damages for repudiation of a 
contingent guarantee, letter of credit, loan commitment, or similar 
credit obligation of a covered financial company shall be no less than 
the estimated value of the claim as of the date of the appointment of 
the FDIC as receiver for the company, as such value is 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 Rule provides 
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 liquidation of the subsidiary will be distributed 
according to the order of priorities 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 Rule 
expressly recognizes 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). The only comment 
concerning Sec.  380.5 of the Proposed Rule asked for confirmation that 
an insurance company (and its policyholders) might submit different 
claims according to its capacity as a shareholder, general creditor, or 
otherwise in relation to the order of priority. The FDIC does not 
believe that the rule text creates any uncertainty in this regard and 
so Sec.  380.5 is unchanged in the Rule.
    Liens on Insurance Company Assets. Section 380.6 of the Rule limits 
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

[[Page 4214]]

covered financial company, the liquidation or rehabilitation of such 
insurance company shall be conducted as provided under the laws and 
requirements of the State. 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 Rule recognizes that the orderly liquidation of such a covered 
affiliate or subsidiary should not unnecessarily interfere with the 
liquidation or rehabilitation of the insurance company, and that the 
interests of the policy holders in the assets of the insurance company 
should be respected. Accordingly, the Rule provides that the FDIC 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. The 
final paragraph 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 will limit or restrict the ability of the FDIC 
or the receiver to take a lien on in 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. 
Commenters expressed concerns that the language of the Proposed Rule 
was not sufficiently clear that the power to take a lien on a company's 
assets was limited to the assets of the company that received the 
advance of funds. The Rule clarifies the language in this respect. In 
all other aspects, however, the FDIC believes that the limitations set 
forth in the Proposed Rule are clear and appropriate and require no 
changes in the Rule. The determination that taking 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 the insurance company or the recoveries by its policyholders should 
be committed to the discretion of the FDIC. By so providing, the FDIC's 
rules will best avoid the possibility of harmful delay and help ensure 
a speedy and orderly liquidation process.

IV. Request for Comments

    The FDIC requests comments on any aspect of the Rule that would be 
helpful in refining the Rule further. In addition, the FDIC 
specifically requests comments on the following issues:
    1. Are there additional ways to reduce moral hazard and increase 
market discipline and to clarify that all creditors should assume that 
they will receive no additional payments and their recovery will be 
limited to what will be paid according to the order of priorities 
established under section 210(b)?
    2. Subsection 380.2 precludes any ``additional payments'' under the 
statute to holders of long term debt, which is defined as debt with a 
term in excess of 360 days. What are the positive and negative 
consequences that this may have for market stability? What effect might 
this have on long term debt and its role in funding for financial 
companies? Is additional flexibility needed? Are there additional ways 
to counteract any impression that shorter term debt is not at risk? 
Does using a term of 360 days adequately distinguish longer term from 
shorter term debt? Should a different period be used?
    3. What additional guidelines would be useful in creating certainty 
with respect to establishment of fair market value of various types of 
collateral for secured claims?
    4. Should the date of appointment of the receiver be used as the 
valuation date for all types of collateral, or only government 
securities or other publicly traded securities?
    5. Who should receive the benefit or burden of market fluctuation 
between the date of appointment of the receiver and the date of payment 
of a claim? For example, if a claim is for $100, and the collateral is 
valued at $98 on the date of appointment of the receiver, and at $102 
at the date of payment of the claim, should the claimant receive $98 
plus an unsecured claim of $2, should they receive the full value of 
their secured claim of $100, or should they receive the full value of 
the collateral, i.e., $102?
    6. Should the FDIC designate a specific time during the term of the 
receivership to estimate contingent claims?
    All comments must be received by the FDIC not later than March 28, 
2011.

V. Regulatory Analysis and Procedure

A. Paperwork Reduction Act

    The Rule establishes internal rules and procedures for the 
liquidation of a failed systemically important financial company. It 
does 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 Rule will not have a significant impact on a 
substantial number of small entities. The Rule will 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 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 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).

D. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the Rule is 
not a ``major rule'' within the meaning of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (SBREFA) (5 U.S.C. 801 et 
seq.). As required by SBREFA, the FDIC will file the appropriate 
reports with Congress and the General Accounting Office so that the 
Rule may be reviewed.

E. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471), requires the Federal

[[Page 4215]]

banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The FDIC has sought to present the 
Rule in a simple and straightforward manner.

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 amends chapter III of title 12 of the 
Code of Federal Regulations by adding new part 380 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.

    For purposes of this part, the following terms are defined as 
follows:
    (a) The term ``bridge financial company'' means a new financial 
company organized by the Corporation in accordance with 12 U.S.C. 
5390(h) for the purpose of resolving a covered financial company.
    (b) The term ``Corporation'' means the Federal Deposit Insurance 
Corporation.
    (c) The term ``covered financial company'' means:
    (1) A financial company for which a determination has been made 
under 12 U.S.C. 5383(b) and
    (2) Does not include an insured depository institution.
    (d) The term ``covered subsidiary'' means a subsidiary of a covered 
financial company, other than:
    (1) An insured depository institution;
    (2) An insurance company; or
    (3) A covered broker or dealer.
    (e) The term ``insurance company'' means any entity that is:
    (1) Engaged in the business of insurance;
    (2) Subject to regulation by a State insurance regulator; and
    (3) Covered by a State law that is designed to specifically deal 
with the rehabilitation, liquidation or insolvency of an insurance 
company.


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 Dodd-Frank Wall Street Reform 
and Consumer Protection 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 the affirmative vote of a majority 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. Such fair market value 
shall be determined as of the date the Corporation was appointed 
receiver of the covered financial company.


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 resolution 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.

[[Page 4216]]

    (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 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) The Corporation as receiver shall not disallow a claim based on 
an obligation of the covered financial company solely because the 
obligation is contingent. To the extent the obligation is contingent, 
the receiver shall estimate the value of the claim, as such value is 
measured based upon the likelihood that such contingent obligation 
would become fixed and the probable magnitude thereof.
    (b) If the receiver repudiates a contingent obligation of a covered 
financial company consisting of a guarantee, letter of credit, loan 
commitment, or similar credit obligation, the actual direct 
compensatory damages for repudiation shall be no less than the 
estimated value of the claim as of the date the Corporation was 
appointed receiver of the covered financial company, as such value is 
measured based upon the likelihood that such contingent claim would 
become fixed and the probable magnitude thereof.


Sec.  380.5  Treatment of covered financ