CLE Materials for Panel #1 - George Washington University Law ...

WILMARTH
4/1/2011 1:11 PM
1002 OREGON LAW REVIEW [Vol. 89, 951
Dodd-Frank provides that the FRB may not extend emergency
secured loans under section 13(3) of the Federal Reserve Act 210
except to solvent firms that are “participant[s] in any program or
facility with broad-based eligibility” that has been approved by the
Treasury Secretary and reported to Congress. 211 Second, section
1105 of Dodd-Frank provides that the FDIC may not guarantee debt
obligations of depository institutions or their holding companies or
other affiliates except pursuant to a “widely available program” for
“solvent” institutions that has been approved by the Treasury
Secretary and endorsed by a joint resolution of Congress. 212
In light of the foregoing constraints, it is difficult to envision how
the FRB or the FDIC could provide loans or debt guarantees to
individual failing SIFIs or their subsidiary banks under sections 1101
or 1105 of Dodd-Frank. 213 However, the FRB arguably could use its
remaining authority under section 13(3) to create a “broad-based”
program similar to the Primary Dealer Credit Facility (PDCF) in order
to provide emergency liquidity assistance to a selected group of
LCFIs that the FRB deemed to be “solvent.” 214 As the events of 2008
210 12 U.S.C. § 343; see also FIN.CRISIS INQUIRY COMM’N, supra note 122, at 19, 21–
22, 25–26 (discussing section 13(3) as amended in 1991 and as applied by the FRB to
provide emergency secured credit to particular firms and segments of the financial markets
during the financial crisis).
211 Dodd-Frank Act § 1101(a) (requiring the Fed to use its section 13(3) authority solely
for the purpose of establishing a lending “program or facility with broad-based eligibility”
that is open only to solvent firms and is designed “for the purpose of providing liquidity to
the financial system, and not to aid a failing financial company”); see S. REP. NO. 111-
176, at 6, 182–83 (2010) (discussing Dodd-Frank’s restrictions on the FRB’s lending
authority under section 13(3)).
212 Dodd-Frank Act § 1105. In addition, Dodd-Frank bars the FDIC from establishing
any “widely available debt guarantee program” based on the SRE under the FDI Act. In
October 2008, federal regulators invoked the SRE in order to authorize the FDIC to
establish the Debt Guarantee Program (DGP). Dodd-Frank Act § 1106(a). The DGP
enabled depository institutions and their affiliates to issue more than $300 billion of FDICguaranteed
debt securities between October 2008 and the end of 2009. See FIN. CRISIS
INQUIRY COMM’N, supra note 122, at 29–32. However, Dodd-Frank prohibits regulators
from using the SRE to establish any program similar to the DGP. Dodd-Frank Act §
1106(a); see also S. REP. NO. 111-176, at 6–7, 183–84 (discussing Dodd-Frank’s
limitations on the FDIC’s authority to guarantee debt obligations of depository institutions
and their holding companies).
213 See Gordon & Muller, supra note 200, at 40, 44–47.
214 The FRB established the PDCF in March 2008 (at the time of its rescue of Bear) and
expanded that facility in September 2008 (at the time of Lehman’s failure). The PDCF
allowed the nineteen primary dealers in government securities to make secured borrowings
from the FRB on a basis similar to the FRB’s discount window for banks. The nineteen
primary dealers eligible for participation in the PDCF were securities broker-dealers;
however, all but four of those dealers were affiliated with banks. As of March 1, 2008, the