DTCC Connection

Jun 01, 2011 • DTCC Connection

DTCC Represents the Infrastructure On ‘Too Big to Fail’ Committee

by Helen Cunningham


Michael Bodson, DTCC COO

The Federal Deposit Insurance Corporation (FDIC) has created a new Advisory Committee on Systemic Resolutions that will give the agency advice and guidance on issues related to unwinding large, systemically important financial institutions when they fail. The FDIC gained the authority to manage the wind-down of such institutions under Dodd-Frank.


“Congress has given the FDIC a tremendous amount of responsibility to ensure that financial organizations formerly deemed too big to fail will no longer receive taxpayer-funded bailouts,” said FDIC Chairman Sheila Bair. “The Advisory Committee we created brings together some of the best and brightest minds to augment the groundwork that the FDIC has already put in place to handle an extremely large and complex failure. I am very pleased with the caliber of people who have agreed to serve on this important committee.”


DTCC’s Michael Bodson, COO, was named to the 18-person committee, whose members include Paul Volcker, former chairman of the Federal Reserve Board, and DTCC Board member Gary Stern, former president and CEO of the Federal Reserve Bank of Minneapolis.


“This committee includes some of the nation’s leading authorities on the financial system, and it is a tremendous honor to represent DTCC,” said Bodson. “The inclusion of DTCC is a clear statement of the vital role our organization plays in managing systemic risk and providing stability to the marketplace.”


Planning ahead

The committee will advise the FDIC on potential financial and economic ramifications when a systemically important firm fails. It will also give advice on:


  • How resolution strategies would affect stakeholders and customers of these entities;
  • Tools available to the FDIC to wind down the operations of a failed organization;
  • Tools needed to assist in cross-border relations with foreign regulators and governments when a systemic company has international operations;
  • The harmonization of resolution regimes across borders.

Formed for a two-year tenure, the committee reports to the chair of the FDIC and will meet periodically throughout the year. Its inaugural meeting was June 21.


Stemming systemic risk and contagion

“The FDIC created the panel to help it understand how to deal with the failure of a systemically important financial institution, and my role will be to represent the infrastructure side of the industry,” said Bodson. “DTCC has a strong history of working behind the scenes to manage the failure of member firms in a highly effective manner. Our rules and procedures are designed to ensure the orderly wind-down of a bankrupt institution, while minimizing the impact on other participants.”


The 2008 collapse of Lehman Brothers is a case study in the systemic risk posed to the financial markets when a large institution fails, according to Bodson. “Post-Lehman, the regulators, the industry and the public want to know that, if a large financial organization fails, a rigorous process is in place to ensure a controlled, orderly wind-down,” he said. “The goal is to minimize systemic risk and stem contagion, both in the U.S. and globally.”


In order to develop this capability, the committee will think through the risk scenarios that emerge when a large financial institution founders and advise the FDIC on the full range of tools available to facilitate an orderly wind-down. “The 2008 financial crisis made it clear that nobody wants the backstop to be a government bailout,” said Bodson. @


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