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

WILMARTH
4/1/2011 1:11 PM
2011] The Dodd-Frank Act 1015
failures of SIFIs and their accompanying pressures for governmental
protection of systemically important creditors. 268
D. Dodd-Frank Does Not Require SIFIs to Pay Insurance Premiums
to Pre-Fund the Orderly Liquidation Fund
As noted above, Dodd-Frank establishes an Orderly Liquidation
Fund (OLF) to provide financing for the FDIC’s liquidation of failed
SIFIs. However, Dodd-Frank does not require LCFIs to pay
assessments for the purpose of pre-funding the OLF. 269 Instead,
Dodd-Frank authorizes the FDIC borrow from the Treasury to
provide the necessary funding for the OLF after a SIFI is placed in
receivership. 270
The FDIC must repay any borrowings from the Treasury within
five years, unless the Treasury determines that an extension of the
repayment period is “necessary to avoid a serious adverse effect on
the financial system of the United States.” 271 Dodd-Frank authorizes
the FDIC to repay borrowings from the Treasury by making ex post
assessments on (1) creditors who received preferential payments (to
the extent of such preferences), (2) nonbank SIFIs supervised by the
FRB under Dodd-Frank, (3) BHCs with assets of $50 billion or more,
and (4) other financial companies with assets of $50 billion or
more. 272 Dodd-Frank requires the FDIC to determine the appropriate
assessment levels for nonbank SIFIs, large BHCs and other large
financial companies by (1) setting a “graduated basis” for assessments
that requires larger and riskier financial companies to pay higher rates
and (2) establishing a “risk matrix” that incorporates
recommendations from the FSOC. 273
Thus, Dodd-Frank relies on an ex post funding system for
financing liquidations of SIFIs. That was not the case with early
versions of the legislation. The bill passed by the House of
Representatives would have authorized the FDIC to pre-fund the OLF
by collecting up to $150 billion in risk-based assessments from
268 Id. at 22–23; JOHNSON &KWAK, supra note 137, at 205–08.
269 See supra notes 199–200 and accompanying text.
270 Dodd-Frank Act § 210(n)(5), (6); see also supra note 199 and accompanying text
(discussing the FDIC’s authority to borrow from the Treasury).
271 Dodd-Frank Act § 210(n)(9)(B), (o)(1)(B), (C) (quote).
272 § 210(o)(1).
273 § 210(o)(4).