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2.11 Orderly Liquidation Fund

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2.11 Orderly Liquidation Fund

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2.11.     Orderly Liquidation Fund.  The Act establishes a Orderly Liquidation Fund ("Liquidation Fund") in the Treasury that is available to the FDIC in connection with its receivership operations under the Act.   The FDIC upon appointment as a receiver is authorized to issue obligations to the Treasury Secretary.  The FDIC's issuance of obligations in connection with the liquidation of a covered financial company may not exceed (i) an amount equal to 10 percent of the total consolidated assets of the company, and (ii) an amount that is equal to 90 percent of the fair value of the total consolidated assets of the company that are available for repayment.  The FDIC and the Treasury Secretary are required to jointly issue regulations regarding the calculation of the maximum obligation limitation.  The Treasury Secretary may not purchase any obligations unless there is an agreement between the Treasury Secretary and the FDIC that provides a specific plan for repayment of such borrowing and that demonstrates that the FDIC's income from the assets of the covered financial company and assessments on eligible financial companies will be sufficient to amortize the borrowings within a specified time period.  [§210(n)]     

            2.11.1.    Orderly Liquidation and Repayment Plans.  Amounts in the Liquidation Fund will be made available to the FDIC in connection with a receivership of a covered financial company upon acceptance by the Treasury Secretary of an orderly liquidation plan for the company.                    

            2.11.2.    Assessments on Eligible Financial Companies.  The Act authorizes the FDIC to charge one or more risk-based assessments on eligible financial companies, if such assessments are necessary for the FDIC to repay obligations issued to the Treasury Secretary within 60 months of the issuance of such obligations.   Eligible financial companies are defined as a BHC with assets of $50 billion or more or a Significant Nonbank.

            The FDIC, subject to recommendations from the Oversight Council, is required to develop a risk matrix to be used to impose assessments.  Assessments are to be imposed on a graduated basis, with higher assessments on companies with greater assets and risk.  The factors to be considered by the Oversight Council and the FDIC in assessing risk include: (i) economic conditions, with the intention of having higher assessments during favorable economic conditions and lower assessments during less favorable economic conditions, (ii) other assessments (such as deposit insurance assessments) on the financial company or its affiliates, (iii) the risks presented by the company to the financial system and the likelihood that the company likely would benefit from an orderly liquidation, (iv) any risks presented by the financial company during the 10 years prior to appointment of the FDIC as receiver that contributed to the failure of the institution in receivership, and (v) any other risk-related factors deemed to be appropriate.

The FDIC, in consultation with the Treasury Secretary, is required to issue regulations to carry out the assessment process. The regulations must take into account the differences among companies in risks posed by particular companies and other factors to ensure that assessed companies are treated equitably.