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2.3 Principles Governing Orderly Liquidation

<< Title II Overview

2.3 Principles Governing Orderly Liquidation



2.3.       Principles Governing Orderly Liquidation.  The goal of a receivership under Title II is to provide the authority to liquidate failing financial companies that pose a significant risk to the financial stability of the U.S. in a manner that mitigates such risk and minimizes moral hazard.  [§204]  The authority provided in Title II is to be exercised in a manner that best fulfils that purpose, so that:

·         creditors and shareholders will bear the losses of the financial company;

·         management responsible for the condition of the financial company will not be retained; and 


·         the FDIC and other appropriate agencies will take all steps to assure that all parties, including management and third parties, having responsibility for the condition of the financial company, bear losses consistent with their responsibility, including actions for damages, restitution, and recoupment of compensation and other gains not compatible with such responsibility.


The FDIC is required to consult with the primary Federal regulator of the covered financial company and any functional regulator of any subsidiaries of the company that are not covered subsidiaries.