Orderly Liquidation Authority: FDIC Announces Its Strategy

In a speech last Thursday, May 10, 2012, the Acting Chairman of the Federal Deposit Insurance Corporation ("FDIC"), Martin J. Gruenberg, outlined the agency's strategy for the Orderly Liquidation Authority ("OLA").¹ On its face at least, the approach is simple: the FDIC will place only the top-tier holding company of a distressed institution whose impending default would damage U.S. financial stability into an OLA receivership. It may—but not necessarily will—wipe out the company's shareholders and turn unsecured creditors (both senior and junior) into shareholders, subordinated debt holders, and unsecured creditors of a new bridge holding company. Now well-capitalized and supported by guarantees, the bridge company should, in the FDIC's view, be able to obtain new private financing, which it can downstream into any troubled subsidiaries.