On September 13, 2011, the Federal Deposit Insurance Corporation approved a final rule requiring certain financial institutions to prepare a plan for their dismantling in the event of material financial distress or failure.

The rule is mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which requires, among other things, that each covered company periodically submit to the Board of Governors of the Federal Reserve System, the Financial Stability Oversight Council, and the FDIC a resolution plan for the rapid and orderly resolution of the company under the Bankruptcy Code in the event of material financial distress or failure. This requirement applies to all nonbank financial companies subjected to supervision by the Federal Reserve Board under Title I of the Dodd-Frank Act and all bank holding companies with assets of $50 billion or more, including foreign bank holding companies with U.S. financial operations.

Resolution plans must provide the FDIC with essential information concerning the financial institution’s structure, operations, business practices, financial responsibilities and risk exposures. The goal of the resolution plans is to describe how the FDIC, as receiver, will be able to wind-up the financial institution under the Federal Deposit Insurance Act in a way that provides depositors with access to their deposits within one business day of the institution’s failure (two business days if the failure occurs on a day other than Friday), maximizes the net present value return from the sale or disposition of its assets and minimizes the amount of any loss to be realized by the institution’s creditors.

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