12 U.S.C. § 5383 — Systemic risk determination

Page 1875 TITLE 12—BANKS AND BANKING § 5383 § 5383. Systemic risk determination (a) Written recommendation and determination (1) Vote required (A) In general On their own initiative, or at the request of the Secretary, the Corporation and the Board of Governors shall consider whether to make a written recommendation de- scribed in paragraph (2) with respect to whether the Secretary should appoint the Corporation as receiver for a financial com- pany. Such recommendation shall be made upon a vote of not fewer than 2⁄3 of the mem- bers of the Board of Governors then serving and 2⁄3 of the members of the board of direc- tors of the Corporation then serving. (B) Cases involving brokers or dealers In the case of a broker or dealer, or in which the largest United States subsidiary (as measured by total assets as of the end of the previous calendar quarter) of a financial company is a broker or dealer, the Commis- sion and the Board of Governors, at the re- quest of the Secretary, or on their own ini- tiative, shall consider whether to make the written recommendation described in para- graph (2) with respect to the financial com- pany. Subject to the requirements in para- graph (2), such recommendation shall be made upon a vote of not fewer than 2⁄3 of the members of the Board of Governors then serving and 2⁄3 of the members of the Com- mission then serving, and in consultation with the Corporation. (C) Cases involving insurance companies In the case of an insurance company, or in which the largest United States subsidiary (as measured by total assets as of the end of the previous calendar quarter) of a financial company is an insurance company, the Di- rector of the Federal Insurance Office and the Board of Governors, at the request of the Secretary or on their own initiative, shall consider whether to make the written rec- ommendation described in paragraph (2) with respect to the financial company. Sub- ject to the requirements in paragraph (2), such recommendation shall be made upon a vote of not fewer than 2⁄3 of the Board of Governors then serving and the affirmative approval of the Director of the Federal In- surance Office, and in consultation with the Corporation. (2) Recommendation required Any written recommendation pursuant to paragraph (1) shall contain— (A) an evaluation of whether the financial company is in default or in danger of de- fault; (B) a description of the effect that the de- fault of the financial company would have on financial stability in the United States; (C) a description of the effect that the de- fault of the financial company would have on economic conditions or financial stability for low income, minority, or underserved communities; (D) a recommendation regarding the na- ture and the extent of actions to be taken under this subchapter regarding the finan- cial company; (E) an evaluation of the likelihood of a pri- vate sector alternative to prevent the de- fault of the financial company; (F) an evaluation of why a case under the Bankruptcy Code is not appropriate for the financial company; (G) an evaluation of the effects on credi- tors, counterparties, and shareholders of the financial company and other market partici- pants; and (H) an evaluation of whether the company satisfies the definition of a financial com- pany under section 5381 of this title. (b) Determination by the Secretary Notwithstanding any other provision of Fed- eral or State law, the Secretary shall take ac- tion in accordance with section 5382(a)(1)(A) of this title, if, upon the written recommendation under subsection (a), the Secretary (in consulta- tion with the President) determines that— (1) the financial company is in default or in danger of default; (2) the failure of the financial company and its resolution under otherwise applicable Fed- eral or State law would have serious adverse effects on financial stability in the United States; (3) no viable private sector alternative is available to prevent the default of the finan- cial company; (4) any effect on the claims or interests of creditors, counterparties, and shareholders of the financial company and other market par- ticipants as a result of actions to be taken under this subchapter is appropriate, given the impact that any action taken under this sub- chapter would have on financial stability in the United States; (5) any action under section 5384 of this title would avoid or mitigate such adverse effects, taking into consideration the effectiveness of the action in mitigating potential adverse ef- fects on the financial system, the cost to the general fund of the Treasury, and the poten- tial to increase excessive risk taking on the part of creditors, counterparties, and share- holders in the financial company; (6) a Federal regulatory agency has ordered the financial company to convert all of its convertible debt instruments that are subject to the regulatory order; and (7) the company satisfies the definition of a financial company under section 5381 of this title. (c) Documentation and review (1) In general The Secretary shall— (A) document any determination under subsection (b); (B) retain the documentation for review under paragraph (2); and (C) notify the covered financial company and the Corporation of such determination. (2) Report to Congress Not later than 24 hours after the date of ap- pointment of the Corporation as receiver for a Page 1876 TITLE 12—BANKS AND BANKING § 5383 covered financial company, the Secretary shall provide written notice of the rec- ommendations and determinations reached in accordance with subsections (a) and (b) to the Majority Leader and the Minority Leader of the Senate and the Speaker and the Minority Leader of the House of Representatives, the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Financial Services of the House of Representa- tives, which shall consist of a summary of the basis for the determination, including, to the extent available at the time of the determina- tion— (A) the size and financial condition of the covered financial company; (B) the sources of capital and credit sup- port that were available to the covered fi- nancial company; (C) the operations of the covered financial company that could have had a significant impact on financial stability, markets, or both; (D) identification of the banks and finan- cial companies which may be able to provide the services offered by the covered financial company; (E) any potential international ramifica- tions of resolution of the covered financial company under other applicable insolvency law; (F) an estimate of the potential effect of the resolution of the covered financial com- pany under other applicable insolvency law on the financial stability of the United States; (G) the potential effect of the appointment of a receiver by the Secretary on consumers; (H) the potential effect of the appointment of a receiver by the Secretary on the finan- cial system, financial markets, and banks and other financial companies; and (I) whether resolution of the covered finan- cial company under other applicable insol- vency law would cause banks or other finan- cial companies to experience severe liquidity distress. (3) Reports to Congress and the public (A) In general Not later than 60 days after the date of ap- pointment of the Corporation as receiver for a covered financial company, the Corpora- tion shall file a report with the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives— (i) setting forth information on the fi- nancial condition of the covered financial company as of the date of the appoint- ment, including a description of its assets and liabilities; (ii) describing the plan of, and actions taken by, the Corporation to wind down the covered financial company; (iii) explaining each instance in which the Corporation waived any applicable re- quirements of part 366 of title 12, Code of Federal Regulations (or any successor thereto) with respect to conflicts of inter- est by any person in the private sector who was retained to provide services to the Corporation in connection with such re- ceivership; (iv) describing the reasons for the provi- sion of any funding to the receivership out of the Fund; (v) setting forth the expected costs of the orderly liquidation of the covered financial company; (vi) setting forth the identity of any claimant that is treated in a manner dif- ferent from other similarly situated claim- ants under subsection (b)(4), (d)(4), or (h)(5)(E), the amount of any additional payment to such claimant under sub- section (d)(4), and the reason for any such action; and (vii) which report the Corporation shall publish on an online website maintained by the Corporation, subject to maintaining appropriate confidentiality. (B) Amendments The Corporation shall, on a timely basis, not less frequently than quarterly, amend or revise and resubmit the reports prepared under this paragraph, as necessary. (C) Congressional testimony The Corporation and the primary financial regulatory agency, if any, of the financial company for which the Corporation was ap- pointed receiver under this subchapter shall appear before Congress, if requested, not later than 30 days after the date on which the Corporation first files the reports re- quired under subparagraph (A). (4) Default or in danger of default For purposes of this subchapter, a financial company shall be considered to be in default or in danger of default if, as determined in ac- cordance with subsection (b)— (A) a case has been, or likely will promptly be, commenced with respect to the financial company under the Bankruptcy Code; (B) the financial company has incurred, or is likely to incur, losses that will deplete all or substantially all of its capital, and there is no reasonable prospect for the company to avoid such depletion; (C) the assets of the financial company are, or are likely to be, less than its obliga- tions to creditors and others; or (D) the financial company is, or is likely to be, unable to pay its obligations (other than those subject to a bona fide dispute) in the normal course of business. (5) GAO review The Comptroller General of the United States shall review and report to Congress on any determination under subsection (b), that results in the appointment of the Corporation as receiver, including— (A) the basis for the determination; (B) the purpose for which any action was taken pursuant thereto; (C) the likely effect of the determination and such action on the incentives and con- duct of financial companies and their credi- tors, counterparties, and shareholders; and Page 1877 TITLE 12—BANKS AND BANKING § 5384 (D) the likely disruptive effect of the de- termination and such action on the reason- able expectations of creditors, counterparties, and shareholders, taking into account the impact any action under this subchapter would have on financial sta- bility in the United States, including wheth- er the rights of such parties will be dis- rupted. (d) Corporation policies and procedures As soon as is practicable after July 21, 2010, the Corporation shall establish policies and pro- cedures that are acceptable to the Secretary governing the use of funds available to the Cor- poration to carry out this subchapter, including the terms and conditions for the provision and use of funds under sections 5384(d), 5390(h)(2)(G)(iv), and 5390(h)(9) of this title. (e) Treatment of insurance companies and insur- ance company subsidiaries (1) In general Notwithstanding subsection (b), if an insur- ance company is a covered financial company or a subsidiary or affiliate of a covered finan- cial company, the liquidation or rehabilitation of such insurance company, and any sub- sidiary or affiliate of such company that is not excepted under paragraph (2), shall be con- ducted as provided under applicable State law. (2) Exception for subsidiaries and affiliates The requirement of paragraph (1) shall not apply with respect to any subsidiary or affil- iate of an insurance company that is not itself an insurance company. (3) Backup authority Notwithstanding paragraph (1), with respect to a covered financial company described in paragraph (1), if, after the end of the 60-day pe- riod beginning on the date on which a deter- mination is made under section 5382(a) of this title with respect to such company, the appro- priate regulatory agency has not filed the ap- propriate judicial action in the appropriate State court to place such company into or- derly liquidation or rehabilitation under the laws and requirements of the State, the Cor- poration shall have the authority to stand in the place of the appropriate regulatory agency and file the appropriate judicial action in the appropriate State court to place such com- pany into orderly liquidation or rehabilitation under the laws and requirements of the State. (Pub. L. 111–203, title II, § 203, July 21, 2010, 124 Stat. 1450; Pub. L. 114–113, div. O, title VII, § 706(b)(1), Dec. 18, 2015, 129 Stat. 3029.) Editorial Notes REFERENCES IN TEXT This subchapter, referred to in subsecs. (a) to (d), was in the original ‘‘this title’’, meaning title II of Pub. L. 111–203, July 21, 2010, 124 Stat. 1442, which is classified principally to this subchapter. For complete classifica- tion of title II to the Code, see Tables. AMENDMENTS 2015—Subsec. (e)(3). Pub. L. 114–113 inserted ‘‘or reha- bilitation’’ after ‘‘orderly liquidation’’ in two places. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as a note under section 5301 of this title. § 5384. Orderly liquidation of covered financial companies (a) Purpose of orderly liquidation authority It is the purpose of this subchapter to provide the necessary authority to liquidate failing fi- nancial companies that pose a significant risk to the financial stability of the United States in a manner that mitigates such risk and mini- mizes moral hazard. The authority provided in this subchapter shall be exercised in the manner that best fulfills such purpose, so that— (1) creditors and shareholders will bear the losses of the financial company; (2) management responsible for the condi- tion of the financial company will not be re- tained; and (3) the Corporation and other appropriate agencies will take all steps necessary and ap- propriate to assure that all parties, including management, directors, and third parties, hav- ing responsibility for the condition of the fi- nancial company bear losses consistent with their responsibility, including actions for damages, restitution, and recoupment of com- pensation and other gains not compatible with such responsibility. (b) Corporation as receiver Upon the appointment of the Corporation under section 5382 of this title, the Corporation shall act as the receiver for the covered finan- cial company, with all of the rights and obliga- tions set forth in this subchapter. (c) Consultation The Corporation, as receiver— (1) shall consult with the primary financial regulatory agency or agencies of the covered financial company and its covered subsidiaries for purposes of ensuring an orderly liquidation of the covered financial company; (2) may consult with, or under subsection (a)(1)(B)(v) or (a)(1)(L) of section 5390 of this title, acquire the services of, any outside ex- perts, as appropriate to inform and aid the Corporation in the orderly liquidation process; (3) shall consult with the primary financial regulatory agency or agencies of any subsidi- aries of the covered financial company that are not covered subsidiaries, and coordinate with such regulators regarding the treatment of such solvent subsidiaries and the separate resolution of any such insolvent subsidiaries under other governmental authority, as appro- priate; and (4) shall consult with the Commission and the Securities Investor Protection Corpora- tion in the case of any covered financial com- pany for which the Corporation has been ap- pointed as receiver that is a broker or dealer registered with the Commission under section 78o(b) of title 15 and is a member of the Securi- ties Investor Protection Corporation, for the purpose of determining whether to transfer to