Kroll Bond Rating Agency Releases Report: Bailing-In Creditors: The Answer to Too Big to Fail?

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Kroll Bond Rating Agency Releases Report: Bailing-In Creditors: The Answer to Too Big to Fail?

NEW YORK--(BUSINESS WIRE)-- Kroll Bond Rating Agency (KBRA) released a research report discussing the potential resolution to the Too Big to Fail issue. The report, "Bailing-In Creditors: The Answer to Too Big To Fail?" was published earlier today and can be found at www.krollbondratings.com.

Congress may finally have succeeded in driving a spike through the heart of much of Too Big to Fail (TBTF) with the Dodd-Frank Act (DFA) and related regulatory actions. However, several dimensions of TBTF may live on. The full status of TBTF will, of course, only be revealed in the next major financial crisis.


Debt holders may pay a significant portion of the price of ending TBTF. Most at risk would be investors in debt instruments of the very largest systemically important financial institutions (SIFIs), and especially in debt instruments of their top tier holding companies.

DFA gives regulators two tracks for dealing with SIFIs: Normal bankruptcy and Orderly Liquidation Authority (OLA). Normal bankruptcy is DFA's preferred track for resolving SIFI holding companies and affiliates, and includes normal FDIC resolution of any affiliated insured depositories. OLA is only to be used to avoid systemic risk. On either track, DFA is clear that taxpayers are not to take a loss in resolving a failed SIFI, thus satisfying the biggest criticism of TBTF. OLA would allow temporary borrowings from the Treasury or guarantees by the FDIC, but OLA also includes a path to assure that taxpayers are made whole for any losses they might incur along the way.



Kroll Bond Rating Agency
Greg Root, 646-731-2381
groot@krollbondratings.com
or
Ronald I. Mandle, CFA - Consultant
917-353-8024
ron37mandle@gmail.com

KEYWORDS:   United States  North America  New York

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