Alert October 16, 2012

FDIC Issues Final Rule to Implement Authority to Preserve Affiliate Contracts as Receiver of Systemically Important Financial Institutions

On March 27, 2012, the FDIC published a notice of proposed rulemaking (“NPR”) in the Federal Register setting forth its proposed rule relating to the enforcement of subsidiary and affiliate contracts by the FDIC as receiver of a covered financial company (a “systemically important financial institution” or “SIFI”) under Section 210(c)(16) of the Dodd-Frank Act.  (Details of the proposed rule included in the NPR can be found in the March 27, 2012 Financial Services Alert.)  The FDIC has issued the final rule (the “Final Rule”), which is substantially consistent with the proposed rule, but contains two clarifying changes and some clarifying statements added to the preamble.  The two clarifying changes relate to the FDIC possibly requiring a bridge financial company to terminate its status as a bridge financial company before completion of the resolution process and having the successor to the bridge financial company transfer assets or interests in the successor to creditors of the SIFI.  The FDIC recommends including (i) an additional clause to the definition of “specified financial condition clause,” and (ii) an additional related definition for “successor,” in each case to make it clear that section 210(c)(16) and the Final Rule continue to protect covered contracts of subsidiaries and affiliates through the completion of the resolution process, even where the process is completed by a successor to a bridge financial company and results in a change of control of the successor.  Additionally, statements were added to the preamble to clarify that absolute call rights, i.e., the right to demand performance from an affiliate of a SIFI at any time and for any reason, is not a type of remedy prohibited under the Final Rule.