Dodd-Frank Title II and the European Resolution and Recovery Framework: A Comparative Approach for Failing Financial Institutions (Webinar)

04/06/2011

Business Restructuring + Insolvency

Speaking Engagement

Both the U.S. and EU have recognized the need for adequate frameworks to address failing financial institutions at an early stage. These proposals are already leading to concerns on the part of potential investors in senior bank debt and sellers of credit protection of debt issued by such entities, in addition to challenging financial institutions seeking to issue senior debt.

As part of the attempt in the Dodd-Frank Act to eliminate the “too big to fail” doctrine and avoid future taxpayer-funded bailouts, Title II creates a new “orderly liquidation authority” (OLA) to unwind failing complex financial institutions where bankruptcy would threaten U.S. financial stability. The OLA is roughly modeled on the existing receivership process for banks, where the Federal Deposit Insurance Corporation will act as receiver. The new structure raises a number of questions, including the treatment of creditors and a possible contingent capital requirement.

Across the pond - and even prior to the enactment of the OLA - the UK introduced recovery and resolution regimes for banks and other financial institutions in the Banking Act 2009 and the Financial Services Act 2010. As recently as January 6, 2011, the European Commission published a consultation paper including the technical details of a possible EU framework for bank recovery and resolution, building on many of the same principles embodied in the UK model. The EU paper also included bail-in proposals in respect of senior debt issued by EU banks, including the possibility of giving relevant regulators the power to require all or part of a bank’s senior debt to be written down or converted into equity following the occurrence of specified trigger events.

Dwight C. Smith, Alexandra Steinberg Barrage, and Peter J. Green of Morrison & Foerster LLP will provide a comparative analysis of these resolution frameworks and issues.

Lecture Topics [Total Time: 01:13:04]

  • Some of the “moral hazard” issues arising in relation to financial companies
  • Systemic banks and “living wills”
  • The treatment of management, creditors, and shareholders
  • The powers of each resolution authority
  • To what extent international coordination might lead to more effective resolution of financial companies
  • The effect of the proposals on senior bank debt and future financing options for banks

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