2.7 Powers and Duties of the FDIC

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2.7 Powers and Duties of the FDIC

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            2.7.       Powers and Duties of the FDIC.  The receivership authority of the FDIC and the procedures for the conduct of receivership under Title II are largely drawn from the similar provisions for depository institution receiverships under FDI Act.  [§210]   The FDIC is given a wide range of powers and accorded significant deference to carry out its receivership and resolution functions. 

            The receivership process established by the Act is far different from the process in a bankruptcy proceeding, particularly a Chapter 11 reorganization.  There is no neutral party that plays a role like a bankruptcy judge.  Claimants have a very limited right to judicial review in a proceeding that generally involves only their claim, rather than participation in a proceeding where all relevant parties are represented and assert their positions in a single transparent forum and argue for a particular type of approach for the future of the troubled entity.  In Title II receivership, the FDIC decides what the resolution approach will be and how particular creditors will be treated, including the potential for different treatment among the same priority of creditors.

                        2.7.1.      General Powers. Upon appointment as receiver, the FDIC succeeds to all rights, powers and privileges of the covered financial company and of any stockholder, officer or director of the company.  [§210(a)(1)]   

                        2.7.2.      Operation of the Covered Financial Company.  The FDIC may operate the company and conduct all its business, collect all obligations and money owed to the company, and manage the assets and property of the company (consistent with the maximization of the value of the assets in the context of an orderly liquidation).  The FDIC as receiver is directed to liquidate and wind-up the affairs of the company, in a manner that the FDIC deems appropriate, including through the sale of assets, the transfer of assets to a bridge financial company or the exercise of any other rights or privileges granted to the receiver under Title II.  When appointed as receiver of a covered financial company, the FDIC may appoint itself a receiver of any covered subsidiary of the covered financial company if certain findings regarding the subsidiary are made by the FDIC and the Treasury Secretary.

                        2.7.3.      Merger; Transfer of Assets and Liabilities.  The FDIC as receiver, may (i) merge the covered financial company with another company, or (ii) transfer any asset or liability (including any assets or liabilities held by the covered financial company for secured parties, any customer property, or any assets or liabilities of any trust or custody business) without obtaining any approval, assignment, or consent with respect to such transfer (other than antitrust clearance, as applicable).

                        2.7.4.      Payment of Valid Obligations.  The FDIC as receiver is required, to the extent that funds are available, to pay all valid obligations of the covered financial company that are due and payable at the time of the appointment of the FDIC as receiver.

                        2.7.5.      Treatment of Shareholders and Creditors of the Covered Financial Company.  The FDIC as receiver succeeds to all the rights, titles, powers, and privileges of the company, and shall terminate all rights and claims that the stockholders and creditors of the covered financial company may have against the assets of the company or the FDIC arising out of their status as stockholders or creditors, except for the right to payment, resolution, or other satisfaction of their claims, as permitted under Title II.   The FDIC is required to ensure that shareholders and unsecured creditors shall bear losses, consistent with the priorities established by Title II.

                        2.7.6.      Suspension of Legal Actions.  After the appointment of the FDIC as receiver, the FDIC may request, and a court shall grant, a stay in any legal action or proceeding in which the covered financial company is or becomes a party for a period not to exceed 90 days.

                        2.7.7.      Limitation on Judicial Review.  Except as otherwise provided in Title II, no court shall have jurisdiction over any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of the covered financial company, including any assets which the FDIC may acquire from itself as receiver, or any claim relating to any act or omission of the covered financial company of the FDIC as receiver. Title II provides exceptions for judicial review of disallowed claims and the continuation of pre-receivership claims.

                        2.7.8.      Objectives in the Disposition of Assets.  The FDIC, in exercising its powers as receiver, including in connection with the sale of assets, is directed, among other things, to (i) maximize the net present value return from any sale or disposition, (ii) minimize the amount of any loss realized in the resolution of cases, (iii) mitigate the potential for serious adverse effects to the financial system, and (iv) ensure fair treatment of offerors.

                        2.7.9.      Fraudulent Transfers, Preferential Transfers, Setoffs.  The FDIC has the authority to avoid transfers that constitute fraudulent transfers or preferential transfers under Title II, as well as unauthorized post-receivership transfers of property, subject to certain rights and defenses of transferees.  The Act also recognizes the right of a creditor of a covered financial company to offset a mutual debt owed by the creditor to the company subject to certain restrictions.

2.7.10.    Attachment of Assets and Other Injunctive Relief.  The FDIC as receiver may request an order for an attachment of the assets of any person designated by the FDIC subject to a lower standard for relief than is normally required. 

                        2.7.11.    Priority of Claims.  The Act establishes the following priorities for unsecured claims against the covered financial company or the FDIC as receiver:

·         Administrative expenses of the receiver;

·         Amounts owed to the United States;

·         Wages, salaries, or commissions, earned not later than 180 days before the appointment of the FDIC as receiver, subject to a specified cap;

 

·         Contributions owed to employee benefit plans arising from services rendered not later than 180 days before the appointment of the FDIC as receiver, subject to a specified cap;

 

·         Any other general or senior liability of the covered financial company;

 

·         Any obligation subordinated to general creditors;

 

·         Any wages, salaries, or commissions owed to senior executives and directors of the covered financial company;

 

·         Any obligations to shareholders, members, general or limited partners, or other persons with interests in the equity of the covered financial company.  

 

                                    2.7.11.1.           Post-receivership Financing Priority. If the FDIC as receiver for a covered financial company is unable to obtain unsecured credit for the company from commercial sources, the FDIC as receiver may obtain credit or incur debt on the part of the company, which shall have priority over any or all administrative expenses of the receiver. 

                        2.7.12.    Treatment of Similarly Situated Creditors. All claimants of a covered financial company that are similarly situated in terms of priority are to be treated in a similar manner, except that FDIC may take any action that does not comply with this provision if the FDIC determines that such action is necessary:

·         to maximize the value of the assets of the covered financial institution;

·         to initiate and continue operations essential to implementation of the receivership or any bridge financial company; 

 

·         to maximize the present value return from the sale or other disposition of the assets from the sale or other disposition of the assets of the covered financial company; or

 

·         to minimize the amount of any loss realized upon the sale or other disposition of the assets of the covered financial company; and

 

·         all claimants that are similarly situated receive not less than the amount that the claimant would have received if the FDIC had not been appointed receiver with respect to the covered financial company, and the company had been liquidated under Chapter 7 of the Bankruptcy Code or any similar provision of state insolvency law applicable to the covered financial company.

 

2.7.12.1.           Secured Claims Not Affected.  The FDIC's authority to differentiate among creditors under certain circumstances as described above does not affect secured claims or security entitlements in respect to assets or property held by the covered financial company, except to the extent that the security is insufficient to satisfy the claim, and then only with regard to the difference between the amount of the claim and the amount realized from the security. 

            2.7.13.    Valuation of Claims; Discretion to Make Additional Payments.   As noted above, the FDIC's maximum liability to a claimant is limited to the amount that the claimant would have received in the absence of an FDIC receivership if the company had been liquidated under Chapter 11.  In a provision that has the potential to generate some controversy depending on how it is employed, the Act provides that the FDIC, with the approval of the Treasury Secretary, may make additional payments to any claimant or category of claimants if the FDIC determines that such payments are necessary or appropriate to minimize losses to the FDIC as receiver from the orderly liquidation of the company.  Any such payments are, however, limited to the extent that they cannot result in a claimant receiving more than the face value of a claim that is prove to the satisfaction of the FDIC.