What changed between these versions
A substantive refinement of the "Least Cost Exception Act." v2 modifies the criteria for determining the maximum allowable cost to the Deposit Insurance Fund and significantly expands the Corporation's flexibility in setting assessments for purchasers, specifically narrowing the scope of liabilities considered to "deposit liabilities." A new clause was added to explicitly link cost determinations to existing FDIC Act provisions.
Overview
A handful of substantive changes affecting the implementation details of the least-cost resolution exception. · v2 refines and clarifies the implementation mechanisms for the least-cost resolution exception, granting the Corporation more flexibility and establishing clearer procedural links to existing law, while also narrowing the scope of certain liabilities.
The primary changes in v2 relate to how the Federal Deposit Insurance Corporation (FDIC) determines costs and assessments under the proposed least-cost resolution exception. v2 shifts from specifying a "maximum amount" for the Deposit Insurance Fund's utilization to requiring the FDIC to establish "criteria for determining on a case-by-case basis the maximum allowable cost." Furthermore, the calculation of assessments for non-GSIB purchasers is made more flexible, allowing the Corporation to establish case-by-case criteria and consider bids inconsistent with the Act's purposes, while also narrowing the scope of liabilities considered to "deposit liabilities." A new provision explicitly mandates that all cost determinations align with existing FDIC Act subparagraphs (B) and (C).
Major additions
This new clause mandates that all cost determinations required under the new least-cost resolution exception subparagraph (I) must be made in accordance with subparagraphs (B) and (C) of Section 13(c)(4) of the Federal Deposit Insurance Act.
This addition provides a clear procedural and methodological framework for cost calculations under the exception, ensuring consistency with established FDIC practices for resolution costs. It reduces potential ambiguity regarding how the "least costly" and "maximum allowable cost" figures are derived.
Modifications
This change grants the Federal Deposit Insurance Corporation (FDIC) greater flexibility in applying the least-cost exception. Instead of a single, predetermined cap, the FDIC can now evaluate the appropriate maximum cost based on specific circumstances of each resolution, potentially allowing for more tailored and adaptable responses to financial institution failures, while still operating within established criteria.
Before
Required the Corporation, by rule, to specify "the maximum amount" of the Deposit Insurance Fund's net worth that could be used for the exception.
After
Requires the Corporation, by rule, to "establish criteria for determining on a case-by-case basis the maximum allowable cost" against the Deposit Insurance Fund's net worth.
This modification limits the types of liabilities that, when assumed by a non-GSIB purchaser, trigger the assessment to the Corporation. It also narrows the definition of a "covered alternative" (a GSIB transaction) to only include the assumption of deposit liabilities. This could potentially reduce the financial burden on non-GSIB purchasers by excluding non-deposit liabilities from the assessment calculation, and refine the comparison point for GSIB transactions.
Before
Referred to "assuming liabilities" in the context of a purchaser paying an assessment and in the definition of a "covered alternative."
After
Specifies "assuming deposit liabilities" in both contexts.
This change provides the Corporation with significantly more discretion and tools to determine the appropriate assessment amount from a non-GSIB purchaser. By allowing for case-by-case criteria and the consideration of "inconsistent bids," it enables the FDIC to better manage the financial implications of selecting a non-least-cost resolution, potentially discouraging opportunistic bidding and ensuring the assessment aligns more closely with the policy goals of the Act. It also sets a 1-year deadline for the Corporation to establish these rules.
Before
Stated that assessment payments would be "in an aggregate amount equal to the difference calculated in subclause (II), taking into account a realistic discount rate."
After
States that payments will be "in an amount that takes into account, on a case-by-case basis, criteria the Corporation, by rule, shall establish, including a realistic discount rate, the aggregate amount equal to the difference calculated in subclause (II), and any bid inconsistent with the purposes of this Act, with such rule to be established by the Corporation not later than 1 year after the date of enactment of this subparagraph."
Scope
Meaningful expansion or narrowing — The changes are concentrated within a single, newly proposed subparagraph (I) of Section 13(c)(4) of the Federal Deposit Insurance Act, which establishes the least-cost resolution exception. — v2 represents a refinement of the policy direction established in v1. While the core purpose of providing an exception to the least-cost resolution requirement to limit GSIB concentration remains, v2 clarifies and provides more flexible mechanisms for its implementation rather than altering the fundamental policy. — The new clause (v) explicitly links the cost determinations under the exception to existing subparagraphs (B) and (C) of Section 13(c)(4), ensuring consistency with established FDIC resolution practices. The changes to "liabilities" to "deposit liabilities" also interact with how "covered alternatives" are defined and assessed.
Impact analysis
Federal Deposit Insurance Corporation (FDIC)
Gains increased operational flexibility and clearer procedural guidance.
The FDIC gains increased flexibility and discretion in determining the maximum allowable cost for non-least-cost resolutions and in calculating assessments for non-GSIB purchasers. It is also explicitly directed to establish criteria for these determinations and to ensure consistency with existing cost determination methods.
Insured Depository Institutions undergoing resolution (specifically those not acquired by GSIBs)
Experiences procedural changes in how their resolution costs and purchaser assessments are determined, with potential for more tailored outcomes.
The criteria for determining the maximum allowable cost to the Deposit Insurance Fund for their resolution will be established on a case-by-case basis, rather than against a single fixed amount. The assessment paid by potential non-GSIB purchasers will be based on more flexible, case-by-case criteria, potentially influencing the attractiveness of such acquisitions.
Non-Global Systemically Important Banking Organizations (potential purchasers of failed institutions)
Experiences a potential reduction in the scope of liabilities triggering assessment, but also faces more nuanced assessment criteria, which could be either beneficial or more stringent depending on the specific case and the Corporation's rules.
When purchasing assets and assuming liabilities, the assessment they pay to the Corporation will now specifically consider only "deposit liabilities" rather than all liabilities. The calculation of this assessment will also be subject to more flexible, case-by-case criteria established by the Corporation, including consideration of bids inconsistent with the Act's purposes.
Global Systemically Important Banking Organizations (GSIBs)
Experiences a clarification in the definition of a "covered alternative" that serves as a benchmark for comparison.
The definition of a "covered alternative" (a GSIB transaction) now specifically refers to the assumption of "deposit liabilities" rather than all liabilities. This refines the benchmark against which non-GSIB alternatives are compared.