US Senate bill would let FDIC wind down big banks

July 31, 2009

Federal Deposit and Insurance Corporation (FDIC) Chairman Sheila Bair WASHINGTON, July 30 (Reuters) – Two U.S. senators introduced legislation on Thursday that would give the Federal Deposit Insurance Corp the power to wind down bank holding companies, calling it an interim step until Congress approves broad financial regulatory reforms.

Republican Bob Corker and Democrat Mark Warner said the bill would let the FDIC take control of a bank holding company should an insured depository institution within it get into trouble. The FDIC could move the holding company into receivership and sell off pieces of the company, the senators said.

“The FDIC has the authority to wind down a failing bank, but not a failing bank holding company, which has exacerbated the moral hazard problem we’ve seen over the past 18 months,” Corker said in a statement.

Corker and Warner described the bipartisan legislation as an “interim measure” that would stop the need for the government to prop up any large failing financial institutions. Both lawmakers are members of the Senate Banking Committee, which is working on a wide-ranging plan to overhaul banking and financial services regulation.

The bill also would set a priority list for unsecured creditors of a failed institution, beginning with the receiver’s administrative expenses and FDIC obligations, then obligations to shareholders, members, general partners or other people with interests in the equity of the holding company or affiliates.

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