Dodd Frank: FDIC Posts Liquidation Rules Draft

deems systemically risky, “or the recoveries by its policyholders.”

The FDIC proposal would create new regulations at 12 CFR Part 380.

The Dodd-Frank Act gives states the primary authority over insurer solvency. But, if insurance regulators in a systemically important insurer’s state of domicile take more than 60 days to deal with problems at the insurer, Section 203(e) gives the FDIC the authority to step in and liquidate the insurer in accordance with the insurance laws in effect in the insurer’s state of domicile.

The FDIC says 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 its subsidiaries or affiliates,” the agency says.

But the FDIC says Section 380.6(b) makes it clear that the Dodd-Frank Act itself imposes no restriction on the ability of the FDIC to take a lien on assets of a covered financial company, or any covered subsidiary or affiliate, if that would interfere with FDIC efforts to secure financing the FDIC or the receiver is providing in connection with efforts to sell the entity or the entity’s assets.