The Orderly Liquidation Authority: Fanatical or Familiar? Idealistic or Unrealistic?

The systemic financial crisis of 2008 spurred the failure of numerous financial and non-financial entities. Regulators addressed each of these failures on an ad hoc ex-post basis, granting multiple bailouts in various forms. The refusal to extend these bailouts to one firm, Lehman Brothers, however, caused further panic and contagion throughout the already unstable market as one of the largest financial institutions of the U.S. underwent an extremely lengthy and value-destructive Chapter 11 bankruptcy. Criticism surrounding not only the bailouts, but also the decision to allow Lehman to fail under the Bankruptcy Code, led to the inclusion of the Orderly Liquidation Authority (OLA), a regulatory alternative to bankruptcy for systemically important financial institutions (SIFIs), in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The OLA, although perceived to be a radical departure from traditional bankruptcy, encompasses many familiar resolution principles. Most significant departures from the Bankruptcy Code can be explained by the necessity to ensure the maintenance of financial stability in the national and even global economy in the case of a SIFI failure. By banning future government bailouts as a means to handle a SIFI failure, the OLA also seeks to end the "Too Big To Fail" subsidy and achieve market discipline, such that moral hazard may be minimized. Although the prescribed tactics for effectuating a resolution under the OLA may in fact implicate new moral hazard concerns, many such issues in existence under the old resolution regime have indeed been eliminated. What remains to be seen is the extent to which the agencies will assume their proscribed authority to regulate these SIFIs and the extent to which the market will find their regulations credible.

The Lehman bankruptcy was critiqued for disrupting both domestic and international markets and for destroying large amounts of value unnecessarily. Overall lack of precrisis industry oversight was disparaged for failure to prevent these issues in the first place. This condemnation culminated in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which, inter alia, bans future bailouts and essentially seeks to minimize any ad hoc ex-post involvement of government funds to prevent the failure of another financial company in a future crisis. In place of these, Title I of the Dodd-Frank Act imposes capital and liquidity requirements to minimize risk exante and reduce the likelihood of initial failure. It also requires submission of Resolution Plans-or "living wills"-by certain designated "Systemically Important Financial Institutions" (SIFIs) to demonstrate their non-disruptive resolvability under the Bankruptcy Code. Title II creates a regulatory alternative to bankruptcy-the Orderly Liquidation Authority (OLA)-to wind down failed SIFIs in a way that does not create the systemic risk like that which erupted from Lehman's bankruptcy. Not only does the OLA seek to offer an acceptable alternative to regulators to handle a SIFI that has indeed failed and cannot-despite its Resolution Plan-be resolved under the Bankruptcy Code, but it also seeks to provide incentives to reduce firm risk ex-ante and thereby also further limit the likelihood of initial failure.
The OLA places a failed SIFI-referred to as a "covered financial company" under Title II once the OLA has been triggered-into a Federal Deposit Insurance Corporation (FDIC) receivership, similar to that used to wind down failed commercial banks under the Federal Deposit Insurance Act (FDIA). As such, the FDIC is responsible under Title II for promulgating rules to identify precisely how a resolution under the OLA will be completed. Thus far, the agency has issued an interim final rule and five final rules to provide a general comprehensive framework for this new authority. The agency also recently closed the comment period on another proposed rule and a notice that outlines more specific guidance on the preferred strategy to be used by the FDIC to carry out an orderly liquidation of a covered financial company-the Single Point of Entry (SPOE) strategy. Additionally, the FDIC has established a Systemic Resolution Advisory Committee (SRAC)-comprised of financial market participants; investors; bankruptcy professionals; representatives from the audit, accounting, credit rating, and legal professions; and academic experts-to assist and advise the FDIC on a broad range of issues regarding the resolution of covered financial companies. The SRAC has met four times since its inception in June 2011. Comments published pursuant to the FDIC's rulemaking, minutes available from the SRAC meetings, speeches and testimonials given by members of both the FDIC and the Federal Reserve, and op-eds by various industry pundits offer significant insight into the government, industry, and public perceptions of this new regulatory resolution regime. This paper seeks to consolidate these views to provide a look into the current state of its development.
Specifically, the first half of this paper will look at the substantive provisions of the OLA's resolution mechanisms, identifying those ways in which this new resolution regime is perceived to be similar to or differ from traditional bankruptcy under the Bankruptcy Code. Although many consider the OLA to be a rejection of traditional bankruptcy law for these SIFIs, 1 as a practical matter, it seems to be that these resolutions will, in fact, look quite similar to those under the Bankruptcy Code in practice. 2 Although there are some significant, irreconcilable departures from the Bankruptcy Code, the more significant differences between the two resolution regimes can likely be explained as regulatory protections the OLA provides to guarantee access to certain traditional bankruptcy tools that may not be available in unique circumstances surrounding the collapse of a SIFI. 3 That is, these divergences aim to ensure financial stability of the economy as a whole in the case of a SIFI failure. In the second half of the paper, the focus will shift back to more broadly assess the OLA's potential ability for successful achievement of both its stated goals-(1) the perseveration of financial stability of the market in the case of a SIFI's failure, and (2) the minimization of moral hazard. 4 Although it is clear that the OLA has the potential to achieve both of these to a greater extent than could the Bankruptcy Code in the case of a SIFI failure, the degree to which it can fully achieve both of these twin goals simultaneously without sacrificing the other may be problematic. The answer to this question of degree seems to turn on both the precise demands each of those goals entails as well as the precise approach the regulators decide to take in the regime's implementation and the certainty the regulators are able provide to the market regarding this resolution regime's future use.
Outside of the scope of this paper, but of importance when considering this topic is the extent to which the systemic financial crisis of 2008 arose, not out of the chaos caused by Lehman's bankruptcy, but rather, out of a common reassessment of mortgagebacked securities causing panic and contagion in the markets, which could not be stopped by any form of orderly resolution of any specific firm. 5 To the degree that this was the ultimate instigator of the crisis, although the OLA may aid in stemming inflammation of similar future contagion, it is likely not a suitable solution to preventing it or extinguishing it altogether, and it may indeed become overwhelmed and itself fail altogether in the case of too many simultaneous SIFI collapses. 6 4 Dodd-Frank Wall Street Reform and Consumer Protection Act § 204(a) [hereinafter Dodd-Frank Act] ("It is the purpose of this title to provide the necessary authority to liquidate failing financial companies that pose a significant risk to the financial stability of the United States in a manner that mitigates such risk and minimizes moral hazard."). 5

A. New Advance Resolution Planning Tools
Two provisions of the Dodd-Frank Act provide for new advance resolution planning that will improve the resolvability of a SIFI under any resolution regime: (1) the Title I Resolution Plan requirement 7 and (2) the cross-border resolution coordination directive. 8 It has been generally acknowledged that planning is essential in order to achieve an efficient and effective orderly resolution of a SIFI, 9 and a great deal of work by an extraordinary number of parties has already gone into both of these advance resolution planning efforts.

Title I Resolution Plans
Title I, Section 165(d) of the Dodd-Frank Act requires that certain designated SIFIs prepare Resolution Plans-or "living wills"-to demonstrate how the company would be resolved in a rapid and orderly manner under the Bankruptcy Code in the event of the company's material financial distress or failure. 10 These plans will improve the resolvability of a company under either resolution regime (1) by providing increased transparency of the firm's organizational structure to those effectuating a resolution and (2) by actually granting to the Federal Reserve and the FDIC the authority to preemptively force a firm's restructuring to improve its resolvability.
Although these plans must specifically illustrate resolution under only the Bankruptcy Code, and not Title II, they have the potential to improve the resolvability of a SIFI under Title II as well by providing the FDIC with a better understanding of each SIFI's structure, complexity, and processes. These plans must include, inter alia, a detailed, "jurisdiction-by-jurisdiction analyses of the actions each would need to take in a resolution, as well as the actions to be taken by host authorities," 11 a "description of the standards that will provide a more stable base to prevent institutions from having all of this toxicity on their balance sheets going forward; and that there needs to be market discipline to complement the supervisory process for these institutions."). 7  Although some have voiced positivity regarding the credibility and usefulness of these plans, 34 many continue to question their meaningfulness and some go so far as to declare them entirely lacking in credibility. 35 While some believe that reliance upon the OLA to handle a SIFI failure is a satisfactory and appropriate solution, 36 others sharply critique this view as sapping incentives for market discipline and perpetuating systemic risk.
These critics call for regulatory action to take full advantage of the authority granted under this provision of the Dodd-Frank Act to force the divestiture of certain assets or force a reorganization of the company to make it truly resolvable under the Bankruptcy Code. 37

Cross-Border Coordination
The Dodd-Frank Act includes in the OLA a mandate to the FDIC to "coordinate, to the maximum extent possible, with the appropriate foreign financial authorities regarding the orderly liquidation of any covered financial company" with cross-border operations. 38 The achievement of this directive to establish effective cross-border coordination is widely acknowledged to be essential to the resolution of a global SIFI (G-SIFI). 39  In addition to contributing to the development of multilateral coordination initiatives to bring more countries closer towards the same resolution standards, the FDIC has also sought to establish more specific bilateral agreements with certain key jurisdictions.
These efforts seek to "identify impediments to orderly resolution that are unique to specific jurisdictions and discuss how to mitigate such impediments through rule changes or bilateral cooperation," "examine possible resolution strategies and practical issues related to implementation of such strategies with respect to particular jurisdictions," and establish information sharing coordination. 47 In December of 2012, the FDIC published a joint paper with the Bank of England outlining how the SPOE strategy would be an effective way to resolve a cross-border financial institution without disrupting operations in subsidiaries in either jurisdiction. 48 As is evident by this paper and by the U.K.'s recent acceptance of the EU Bank Recovery and Resolution Directive, the U.K. is increasingly adopting U.S. methods of resolution such that a case such as Lehman's could be handled more efficiently in the future. Additionally, significant bilateral work has been done with Switzerland, 49  In addition to mere coordination and information sharing agreements with foreign regulators, the FDIC is also contemplating ex-ante subsidiarization requirements, which would require SIFIs to conduct their foreign operations through subsidiaries rather than 50 Id. (indicating that the FDIC had meetings in March 2013 with the Deposit Insurance Corporation of Japan "to discuss the FDIC's resolution strategy under the OLA and the treatment of qualified financial contracts under the Dodd-Frank Act" and the Japan Financial Services Agency "to discuss our respective resolution regimes," including the "current legislative proposal to amend Japan's existing resolution regime to enhance authorities ability to resolve SIFIs."). 51 Gruenberg (Mar. 2013), supra note 40 (indicating that the FDIC meets twice a year with a working group from the EC to discuss issues of resolution and deposit insurance, including "the EC's proposed directive on bank recovery and resolution; deposit guarantee regimes; the FDIC's work on planning for SIFI resolutions; and future initiatives that might be undertaken related to cross-border cooperation."). 52 64 Hoenig, supra note 19 (" . . . despite improved and on-going efforts at international cooperation, there are no international bankruptcy laws sufficient to sort out cross-border creditor rights and no mechanism to assure the reliability of the enormous cross-border flow of funds of just one of these the state of information sharing in resolution regimes prior to the crisis, it is clear that a substantial amount of work remains to be done.

"In Default or in Danger of Default"
The determination regarding whether a financial company is "in default or in danger of default" is relatively straightforward. It is to be based upon a finding that: (1) a case has been or is likely to be filed under the Bankruptcy Code; (2) the financial company has incurred or is likely to incur losses that will deplete all or substantially all of its capital; (3) the liabilities of the financial company exceed or are likely to soon exceed its assets; or (4) the financial company cannot or soon will not be able to pay its obligations as they become due in the normal course of business. 66 Although this determination is somewhat more discretionary, it is similar enough to that required for the commencement of an involuntary case under the Bankruptcy Code, 67 such that a failing company should not truly be surprised to lose control in an involuntary bankruptcy proceeding or in a Title II firms. "Ring fencing" assets will be the norm rather than the exception. Under such circumstances, it would be foolish to ignore the fact that countries will protect their domestic creditors and stop outflows of funds when crisis threatens."). 65 Dodd-Frank Act § 203(b) (listing factors necessary for receivership). 66 Id. § 203(c)(4) (defining circumstances to be considered "in default or in danger of default"). 67 11 U.S.C. § 303(h) (2006) (ordering relief in involuntary case against debtor only if (1) "the debtor is generally not paying such debtor's debts as such debts become due" or (2) a custodian had been appointed or took possession within 120 days of the date of the filing of the petition).
receivership. 68 Despite this, several voices from the industry have called for more clarity surrounding the determination of "in danger of default," 69 pointing out that it is not necessarily obvious that a company may be nearing the breaking point, as was the case with Lehman. 70 Whether regulators would have the ability and the access to inside information necessary to make such a determination when industry professionals cannot is also questionable.  73 Dec. 2013 SRAC Meeting, supra note 28 (Member Cohen commenting, "There seems to be a widespread assumption that Title II is an anomaly, that it is radically different than anything that has been before. And rather than that, I think the opposite conclusion is correct; that Title II is just a recognition of what we have recognized for scores of years which is that you resolve financial institutions differently than other corporations."). under Title I of the Dodd-Frank Act. Ultimately, despite the FDIC's insistence that the OLA will be used only in "extraordinary circumstances," 78 it appears to be the consensus that any SIFI failure would be indeed be extraordinary such that neither traditional bankruptcy nor a private market resolution could effectively handle the situation.

"Financial Company"
Lastly, the determination of whether a SIFI satisfies the definition of a "financial company" set forth in Title II has the potential to create significant uncertainty. This available in a non-functioning market surrounding a SIFI failure. Codifying such tools allows the FDIC to ensure financial stability of the markets throughout the orderly liquidation processes.

Speed of Proceedings
Title II provides for a resolution under the OLA to be completed in an exceptionally short period of time. The statute provides for this desired speed of proceedings through provisions that limit access to the judiciary and impose severe time limits. While some of these provisions may seem novel compared to the Bankruptcy Code, they are, in fact, quite in-line with current practices that aim to conclude the reorganization process as quickly as possible.
Traditional bankruptcy law employs the judiciary to provide a forum for the balancing of power between the debtor, the creditors, the debtor-in-possession (DIP) lender, and the bankruptcy judge. The OLA, however, stifles this power struggle by the allocation of almost all power over the process in the hands of the FDIC. 90 Moreover, this power is rarely subject to judicial review throughout the entirety of an orderly liquidation, 91 thereby allowing the process to move along quite quickly. Although this appears at first glance to be a significant divergence from the Bankruptcy Code, that is not quite the case. In practice, current bankruptcy lawyers seek to avoid, as much as possible, the often messy and lengthy power battle through the utilization of various techniques that have been increasingly accepted by both the legislature and the judiciary.
"Pre-packaged" bankruptcies cut through the battleground by allowing a DIP to use votes for a plan of reorganization obtained prior to bankruptcy to effectuate class consent. 92 Section 363 sales avoid a full-fledged reorganization processes entirely by allowing a Title II time limitations also go significantly further to force a speedy OLA process.
The automatic stay restricting shareholder and creditor rights 100 and barring counterparty enforcement of ipso facto clauses 101 lasts only for the ninety days following FDIC's appointment as receiver. Moreover, the stay against judicial proceedings involving the covered financial company also only lasts ninety days after it has been requested by the FDIC. 102 The claims determination deadlines-180 days for most claims 103 and only 94 11 U.S.C. § 363(m) ("The reversal or modification on appeal of an authorization…of a sale or lease of property does not affect the validity of a sale or lease under such authorization…"). 95  ninety days for claims requiring expedited relief 104 -also work to force the FDIC to act quickly. Furthermore, the FDIC has announced that it will be able to complete the receivership process and bring a covered financial company out of receivership within six to nine months using the securities-for-claims exchange method, described below. 105 Although these times limits and limitations on judicial review are more stringent than those existing in the Bankruptcy Code, they reflect the industry-wide preference for quick reorganizations. Moreover, they provide the FDIC with the tools necessary to ensure a quick reorganization that would probably be much more difficult to achieve in traditional bankruptcy given the size and systemic nature of a contemplated covered financial company. 106

Advance Dividends and Distributions to Creditors & Disparate Treatment of Similarly Situated Creditors
Many techniques traditionally used by bankruptcy lawyers seek to maneuver around the Bankruptcy Code's rigid absolute priority and automatic stay rules in order to favor certain "critical" or priority creditors to ensure the continued functioning of the debtor's operations. "First day motions" are typically granted by the bankruptcy judge to allow payment to such critical vendors and priority creditors under the authority of Section 363(b) of the Bankruptcy Code, which allows the trustee (or DIP), after notice and a hearing, to "use, sell, or lease other than in the ordinary course of business, property of the estate." Moreover, the use of Section 363(b) to sell essentially the entire business and, in that sale, to favor certain stakeholders over others is increasingly common and accepted by bankruptcy judges. 107 The OLA grants to the FDIC formal authority to carry out these types of maneuvers through the ability to make advance dividends and distributions to creditors 108 and to treat similarly situation creditors differently. 109 While this authority may seem extremely broad at first glance, the FDIC has limited it significantly through regulations that establish which classes of stakeholders may never receive additional payments 110 and provide for significant procedural requirements that must be met for any such payments to be distributed. 111 Additionally, the statute itself provides several limitations upon these payments including that none may be more than the face value amount of any claim 112 and that they are subject to the "no worse off than in liquidation" requirement. 113 Furthermore, the FDIC has made clear that it only intends for such advance payments to be made, for example, to "essential and necessary service providers" or "creditors with contract claims that are tied to performance bonds or other creditor support needed for the covered financial company to qualify to continue other valuable contracts." 114 Thus, this authority is more akin to traditional bankruptcy "first day motions" and "critical vendor" payments, than just a general carte blanche authority to abandon absolute priority as was originally feared. The aim of this authority, however, is not to simply keep the covered financial system afloat, as it is in traditional bankruptcy, but more broadly to prevent systemic collateral damage were the covered financial company 108 Dodd-Frank Act § 210(d)(4) (allowing the FDIC to make additional payments to certain creditors if it is determined that such payments are necessary or appropriate to minimize losses from the orderly liquidation of the covered financial company). 109 Id. § § 210(b)(4), 210(h)(5)(E) (allowing the FDIC to treat similarly situated creditors differently pending a determination that such differential treatment is necessary (i) "to maximize the value of the assets"; (ii) "to initiate and continue operations essential to implementation of the receivership or any bridge financial company"; (iii) "to maximize the present value return from the sale or other disposition of the assets"; or (iv) "to minimize the amount of any loss realized upon the sale or other disposition of the assets"

Orderly Liquidation Fund
In traditional bankruptcy, debtors can obtain post-petition financing (DIP financing) to allow them to continue operations during their reorganization by granting DIP lenders seniority or security equal to or above all other pre-petition debt. 116 While the OLA also authorizes similar financing, 117 it further provides for a guaranteed source of liquidity from the Treasury if the FDIC cannot find anyone in the private sector to lend to the covered financial company. This government guaranteed liquidity is to come from the Orderly Liquidation Fund (OLF) and may be in the form of direct funding (senior unsecured or secured debt) or guarantees (of assets or debt issued to others). 118 Immediately following the appointment of the FDIC as receiver, the maximum obligation limitation (MOL) of the OLF is 10% of the total consolidated assets of the covered financial company based upon the most recent financial statement available. 119 After a preliminary valuation of the assets and preparation of a mandatory repayment plan, the MOL increases to 90% of the fair value of the total consolidated assets available for repayment. 120 The OLF must be repaid either from recoveries on assets of the failed firm or from risk-based assessments imposed on eligible financial companies. 121 The OLF has priority over all other claims 122 and must be repaid in full before any shareholders of a covered financial company receive any payment. 123 Liquidity is arguably one of the most essential aspects to the successful resolution of a SIFI. However, as was the case in the 2008 financial crisis, creditors who provide such liquidity tend to panic in the case a of a debtor failure or near failure. Financial institutions are particularly vulnerable to such panics because they rely upon short-term borrowing to continue operations. 124 These short-term lenders, however, have the ability to run from a failing institution much more easily than can long-term lenders to avoid being forced to sustain a loss in a future resolution. 125 Moreover, it will likely be exceptionally difficult to find a traditional DIP lender for a SIFI given its size, risk profile, and complexity. 126 Thus, the OLF provides a necessary backstop to prevent such credit runs from destroying an otherwise viable reorganization by guaranteeing a SIFI access to liquidity. 127
contracts generally works well in most cases. However, for [SIFIs], in which the sudden termination and netting of a derivatives portfolio could have an adverse impact on U.S. financial stability, the nullification of the ipso facto clause is needed." 136 Indeed, QFCs caused such disruption in Lehman's bankruptcy that a "key driver of the new regime was the need for a better mechanism to handle these contracts" in the case of a SIFI failure. 137 So while there is a very clear divergence from the Bankruptcy Code in this facet of the OLA, it is a necessary one.
The OLA further seeks to minimize the risk of contractual defaults occurring during a  out to absorb the losses of the covered financial company. This use of bail-in of shareholders and unsecured debt holders is in-line with traditional bankruptcy practice and is preferable to alternatives. 154 Although questions have been raised regarding the FDIC's ability to accurately valuate these NewCos, the securities-for-claims exchange approach is still preferable to a purchase and assumption transaction or a merger 155  This debt is structurally subordinated within the group, and limited external unsecured debt tends to be raised at entities below the financial holding company." 156 So, while this norm makes the SPOE strategy theoretically possible for U.S. SIFIs (putting aside the problem of G-SIFIs based abroad), it also "creates incentives for these companies to shift their structure." 157 Thus, the Federal Reserve has announced that it will issue a proposal to require SIFIs to hold minimum amounts of long-term, unsecured debt at the holding company level. 158 Moreover, to ensure that a failed subsidiary may be effectively recapitalized through the SPOE strategy as well, there may be, included in the proposed rule, an intracompany debt requirement. 159 There remains, however, a further issue to be resolved regarding the recapitalization of the subsidiaries. As noted by some commenters to the FDIC, the current proposals address only the right side of the balance sheet (i.e., debt and capital requirements at the holding company level), but do not address the left side of the balance sheet (i.e., assets of the holding company which can actually be used to recapitalize subsidiaries). 160  financial motivation] to terminate and net out of their contracts." 166 Most significantly, however, is that under the SPOE, the FDIC is essentially guaranteeing the continued operation of the IDI subsidiary of the SIFI, whereas in a resolution under the Bankruptcy Code, it is very likely-and at best uncertain-that the FDIC would place the IDI subsidiary into a traditional FDIA receivership. This is so significant because for most of these SIFIs, a receivership of their IDI subsidiary means the loss of the core business, such that a true reorganization would be effectively precluded, leaving liquidation as the only possibility.

Accountability & Punitive Measures
The FDIC has indicated that, similar to the tradition of DIP management during bankruptcy, the day-to-day management of the bridge financial company will be supervised by the officers and directors of the company, while only high-level key matters will be controlled by the FDIC. 167 However, as part of the OLA's goal to eliminate moral hazard, the original management responsible for the company's failure must be removed from office and will be replaced by a new temporary board of directors and new CEO from a "pre-screened pool of eligible candidates." 168 While this is a substantial deviation from the current Bankruptcy Code, it is not altogether unfamiliar from the realm of U.S. reorganizations. In fact this provision is reminiscent of the essentially mandatory displacement of management and the board of directors under Chapter X of the Chandler Act of 1938. 169 And although Chapter 11 of the current Bankruptcy Code was enacted to provide more job security to managers than did the 166 Id. at 76,616. See also Orderly Liquidation Authority, 12 C.F.R. 380.12 (interpreting Dodd-Frank Act § 210(c) (16) to allow the FDIC, as receiver, to enforce the contracts (including the qualified financial contracts) of subsidiaries and affiliates, notwithstanding any ipso facto clauses, for one business day so that the default clauses are never triggered if the contracts are successfully moved over to the healthy bridge financial company). 167  Chandler Act 170 and contains no mandatory management removal, it is still quite common for management to be replaced in the midst of a bankruptcy. 171 The punitive measures to be taken against senior executives and directors responsible for a covered financial company's failure are also familiar to current bankruptcy law, particularly those provisions added to the Code in 2005. 172 The FDIC has the authority to hold liable directors, officers, attorneys, accountants, and others for grossly negligent conduct that resulted in the "improvident or otherwise improper use or investment of any assets of the covered financial company." 173 Moreover, the FDIC also has the authority to recoup from current or former senior executives or directors substantially responsible for the failure of the company any compensation received during the two years prior to the receivership 174 and the Federal Reserve has the authority to bar certain such executives from working for any financial institution for a period of time. 175

III. ASSESSMENT OF PURPOSE
Through the OLA provisions addressed above, both those that diverge from and those that coincide with the Bankruptcy Code, the new resolution regime created by the Dodd-Frank Act aims to achieve two goals which cannot be met under current traditional bankruptcy law: (1) perseveration of financial stability of the market in the case of a SIFI's failure, and (2) minimization of moral hazard. 176 The first of these twin goalspreservation of financial stability in the case of a failure-is concerned directly with expost failure management. This encompasses not only the mitigation of direct collateral damage caused by significant SIFI interconnectedness, but also indirect collateral damage caused by contagion spurred by a SIFI's failure. The second goal-minimization of moral hazard-, although technically a restriction on the ex-post methods that may be used to achieve the first goal (e.g., a bar against bail-outs), is, in fact, primarily concerned with ex-ante incentive structuring to prevent failure in the first place (i.e., risk minimization). The elimination of moral hazard, thus, also has two facets: (1) a minimization of reliance on the "Too Big To Fail" (TBFT) subsidy and (2) the maximization of market discipline. 177 At the outset, these two goals do not seem to be in tension. The most plausible way to achieve both the goal of financial stability and of minimization of moral hazard is through the use of the tools available under this new resolution regime, described above, to bring certainty to the market. For example, if the financial industry is certain where losses will be borne in the case of a SIFI failure, they will cease relying upon the government to bear such losses. That is, if creditors are certain that they will bear those losses, their monitoring incentives will increase and they will be able to prevent the debtor from undertaking activities that are simply too risky (through increased finance charges, contract covenants, etc.) and market discipline will be restored, thus reducing the 177 While these facets are interrelated, I will treat them individually in this paper. Although the promotion market discipline may lead to the end of TBTF, I argue that the goal of achieving market discipline is broader than the goal of ending reliance on the government's subsidy to firms that are too big to fail. 178 See generally Mark J. Roe, supra note 125 (pointing out that if certain creditors and counterparties believed they would suffer losses in the case of their debtor's bankruptcy, they would have increased monitoring incentives which could prevent the failure altogether The provisions for the Orderly Liquidation Fund (OLF) 183 and the mechanisms that support the SPOE approach also both provide additional certainty to the market in terms of conveying transparency regarding how the FDIC will carry out a resolution using the OLA and in terms of assuring the continuity of systemically important operations throughout the resolution process. However, each of these two tools to be utilized by the FDIC to preserve financial stability may seemingly be at odds with Title II's twin goal of eliminating moral hazard and thus require further consideration.

A. The Orderly Liquidation Fund & Moral Hazard
The OLF-one of the most significant, distinguishing features of the OLA when compared to traditional bankruptcy-likely is, indeed, necessary for maintaining financial stability both in terms of minimizing potential collateral failures due to the interconnectedness of a failed SIFI and in terms of stemming contagion spurred by the failure of a SIFI. The OLF provides not only actual necessary liquidity to keep systemically important operations functioning, but also provides assurance to the markets of that liquidity to stem possible panic and ensuing run-like behavior. 184 Run-like behavior (i.e., contagion) has existed since the beginning of the existence of the banking system. 185 The only effective way to prevent such runs by short-term creditors is arguably through the guarantee of liquidity by the government as the lender of last resort or the guarantee of capital injections by the government. 186 Indeed, the OLF functions much like a guarantee of government-provided liquidity and has the potential to be used to indirectly inject capital into a SIFI subsidiary (as discussed below). Of considerable importance, then, is whether use of the OLF, as such a guarantee, is reconcilable with the goal of elimination of moral hazard, both in terms of ending TBTF and in terms of promoting market discipline.
183 Dodd-Frank Act § 210(n). 184 But see supra note 6 and accompanying text. 185 See SCOTT, supra note 75, at 106-108. 186 See id. at 226 ("The only effective way, therefore, to protect short-term creditors is through public support, in the form of lender of last resort or public guarantees."). It is also important to note though that any assurances provided by the OLF can likely only stem contagion that may occur once a SIFI is already failing, so this guarantee of liquidity may be too little too late. The OLF cannot and is not meant to replace the Federal Reserve's traditional function as lender of last resort. See Dec. 2012 SRAC Meeting, supra note 6. Title II only provides for the broader goal of avoiding initial contagion through the reduction of moral hazard.

The Orderly Liquidation Fund & "Too Big To Fail"
The question of whether this government guarantee of liquidity is reconcilable with the resolution to end TBTF turns on the definition of TBTF. The TBTF subsidy comes in at least two forms: (1) equity capital injections that prevent bankruptcy and therefore shareholder and creditor bail-in (i.e., the typical notion of a government bailout), and (2) cheaper financing due to the perceived lack of bankruptcy risk as a result of the assumption of those capital injections. 187 Clearly the former of these is only realized if and when a firm actually receives a bailout. However, according to a recent study conducted by the International Monetary Fund (IMF), large U.S. banks received a funding advantage of as much as $70 billion between 2011 and 2012. 188 That is, investors demanded at least 15 basis points less from big banks than smaller ones or companies outside the banking sector because of the perception that the government would not let them fail. 189 That number is even more extreme in a study by the New York Federal Reserve, which found that investors demanded 31 basis points less from big banks. 190 If it is merely the cessation of equity capital injections (and subsequently the cheaper financing obtained by reliance upon them) that is sought in order to end TBTF, then the use of the OLF to stem contagion seems to pose no threat to that goal. In fact, as mentioned above, such bailouts are directly prohibited under section 206-the "Mandatory Terms and Conditions for All Orderly Liquidation Actions"-of Title II. 191 Moreover, distributions from the OLF are explicitly subject to this prohibition. 192 The allowable uses of the OLF funds-for liquidity purposes only-are explicitly laid out in the Dodd-Frank Act itself 193  If, however, the threshold demand for market discipline is lowered and it is accepted that there will inevitably always be market volatility, and lender of last resort liquidity is indeed acceptable to compensate for such volatility to ensure the financial stability of the economy, then the OLF is acceptable. Given that such a lender of last resort mechanism for commercial banks has been traditionally accepted, it seems illogical to reject the extension of such a mechanism for all financial institutions that engage in maturity transformation.
A potential problem to be explored, however, is whether this analogy is appropriate.
Is the depository banking system of the Depression-era, which prompted sustained reliance on the Federal Reserve as a lender of last resort, truly analogous to the betmaking high-risk-taking shadow banking system of today? Should institutions operating within the shadow banking system receive such government guaranteed liquidity under the same argument that granted it to the depository banking system? Does the level of risk associated with either category of entities play a role in the decision to grant that guarantee? Should it? Does the value that they add to society play a role? Should it? Is shadow banking adding the same kind of wealth creation and credit extension value to society as traditional depository banks? And further, if they are granted access to this government guaranteed liquidity through the OLA, should they also be subject to more intense regulation? Such considerations are beyond the scope of this paper, but arguably worth exploring in order to truly assess the level of government involvement in these institutions at which society is comfortable.

B. Single Point of Entry & Moral Hazard
The mechanisms supporting the SPOE strategy, identified by the FDIC as the preferred method for effectuating a resolution under the OLA, are, like the OLF, arguably necessary for maintaining financial stability in the event of a SIFI's failure by ensuring continuity of systemically important operations at the subsidiary level. However, this approach also raises questions of moral hazard. Specifically, whether this approach safeguards creditors of SIFI subsidiaries in such a way that is inconsistent with the goal of reduction of moral hazard should be taken into consideration.

Single Point of Entry & "Too Big To Fail"
In a sense, the mechanisms of the SPOE strategy will shift the TBTF subsidy protecting creditors of SIFI subsidiaries from the government's shoulders to those creditors and shareholders of the SIFI holding company. Because only the creditors and shareholders of the holding company will likely be forced to bear the losses in the case of a failure, those transacting with the subsidiary get a de-facto subsidy protecting them from loss. Although this does not pose a problem for the goal of eliminating the government's role in providing this subsidy, it does create an issue familiar from the TBTF subsidy-that is, subsidiaries of SIFIs will be able to take advantage of market inefficiencies to obtain cheaper financing from creditors who will be willing to receive a lower return on transactions or investments since they will misperceive their risk levels as being lower than it truly is. 202 Moreover, SIFI subsidiaries may also benefit from market inefficiencies generated by clients and counterparties who may transact more readily with them based on a perception of stability safeguarded by "governmental policy to prevent operational disruption and distress." 203

Single Point of Entry & Market Discipline
Moreover, this subsidy provided to SIFI subsidiary creditors could also have significant impacts upon market discipline. If creditors at the subsidiary level assume they will be protected from any potential loss by the creditors and shareholders at the holding company, their monitoring incentives are significantly discouraged. Not only is a reduction in monitoring incentives problematic in general, it would seem to be even more poignantly an issue specifically at the subsidiary level, given that this is where operations, which need to be monitored for excessive risk-taking, occur.
The counterarguments to these potential issues are twofold. The first is that because the risk will shift to the creditors at the holding company level, so too will the monitoring incentives shift to those creditors, who will in turn demand appropriately high interest rates to compensate for their increased risk. It is, however, questionable whether the market appreciates fully these shifts in risk to adequately price their financing. It is also questionable whether the creditors at the holding company level are adequately positioned to monitor all of the company's subsidiaries effectively and meaningfully. The other counterargument offered in regards to this new creation of creditor subsidy and reduction of market discipline is that the risk does not transfer so completely to the holding company's creditors as to leave those at the subsidiary completely immune from bail-in risk, and thus, subsidiary creditors still have a need to consider such risk in their financing charges and monitoring functions. While those at the holding company level will indeed be the first to go, Title II provides for an expedited mechanism to incorporate a failed subsidiary into the receivership process along with the holding company if necessary, 204 thereby putting the creditors of that subsidiary at risk to bear losses. 205 This, however, will likely not happen unless the losses are so great that the holding company cannot bear them. It would also have the potentially extremely negative consequence of causing disruptions of systemically important operations at the operating subsidiary level, precisely what the SPOE approach seeks to avoid.
The FDIC is admittedly continuing to reach for a position regarding the SPOE approach that will create certainty regarding the resolution approach to be used and allow the operating subsidiaries to continue functioning to prevent systemic risk, but also ensure that market discipline is maintained at all levels of the company. Another consideration that has been offered, however, is that regardless of the negative impacts on market discipline that the proposed SPOE approach may have on creditor monitoring incentives and inefficient risk pricing in financing, the situation is still better now with the existence of this resolution regime than it was in 2008 when moral hazard was even more pervasive.

C. Punitive and Accountability Measures & Financial Stability
Also worthy of consideration, are those provisions which clearly seem to promote the elimination of moral hazard, but which may have questionable effects on financial stability-the punitive and accountability measures to be taken if a firm fails. These include the mandatory removal of responsible management and board members 206 and the "mandatory" liquidation of the failed company. 207 Although the FDIC does seem quite serious regarding its determination to remove those responsible for the failure of the firm, it is unclear precisely how this will be implemented in practice in a way that does not cause financial instability. For example, if the holding company is the only company put into receivership in order to effectuate the SPOE approach, but the "responsible management" is at the operating subsidiary level, who will be removed? 208 Moreover, how the FDIC will determine the sufficient level of responsibility is, as of yet, also unclear. It may, indeed, be quite difficult to determine whether the failure of the company is due to poor management decisions or overall, uncontrollable market conditions. 209 Lastly, the FDIC has indicated there will be a "pre-screened pool of eligible [management] candidates" from which the replacements for those removed may be chosen. 210 However, it has been pointed out that insider knowledge of the firm, its assets, and its interconnectedness will be extraordinarily hard to replace 211 and significant value could be lost from removal of that knowledge.
The mandatory liquidation of the company-in fact the very name of the "Orderly Liquidation Authority"-also creates some confusion, if not actual uncertainty, regarding the approach to be taken to resolve a failed SIFI. Liquidation and reorganization technically indicate two different methods of resolving a failed company. Liquidation involves selling off assets and closing down the business, while reorganization involves recapitalization and a going-concern business. Although a liquidation is clearly called for in the text of the statute, a true liquidation of a SIFI would likely have significant problematic impacts on the financial stability of the market, causing fire-sales of assets, significant value loss, and contagion. Indeed, this is likely precisely why the FDIC seems to have never even considered such a true liquidation approach to its OLA 209 See Jan. 2012 SRAC Meeting, supra note 12, at 34 (Member Admati noting that "it will be difficult to determine culpability in some circumstances, such as where a decision to take a risk was made by an individual and may have been a good, rational decision on their part, but had a bad outcome."). 210 SPOE Notice, supra note 58, at 76,616. 211 See id. at 34 (Member Johnson noting that "there have been many instances in which the marketplace has allowed management in the financial sector to remain because of their knowledge and expertise-or the lack of available substitutes-to prevent further loss of value."). 212 See id. at 30 (then-FDIC General Council Michael Krimminger pointing out that regardless of whether the process "more closely resembles a Chapter 11 reorganization under the Bankruptcy Code or a Chapter 7 liquidation, … in both instances, given the type of services and operations these companies provide, an immediate cessation of those activities would clearly pose systemic risk; and that, regardless of the ultimate composition or structure of the surviving entity and how securities-for-claims method of recapitalization, which seek to maintain critical services and operations of the company in a reorganization-like, rather than liquidation-like, resolution. 213 Although this departure from clear statutory text may create some reason for pause, it should also be noted that the lines between liquidation and reorganization even in traditional bankruptcy have become increasingly blurred. Reorganizations may occur under the Bankruptcy Code's Chapter 7 provision for liquidation, while liquidations may occur under the Chapter 11 provision for reorganization. The importance of these distinctions has thus become less important.

D. The Utilization of the OLA
The most worrisome aspect of Title II in terms of the certainty it brings to or removes from the market is in the uncertainty surrounding the actual utilization of the OLA-that is, both the uncertainty regarding which firms are eligible for resolution under the OLA and the uncertainty regarding under what circumstances the OLA will, in fact, be chosen to resolve a firm instead of allowing it to go through traditional bankruptcy.
The first of these-regarding the eligibility of firms for resolution under the OLAcreates significant uncertainty because, as discussed in Part II.B.3, a company may be eligible for resolution under Title II even if it has not been designated for supervision by the Federal Reserve under Title I. 214 The possibility of a firm being forced into an OLA receivership with no prior Title I preparation is unsettling to some degree and this inconsistency could and should be addressed by the FDIC and the Federal Reserve to provide further clarification.
The second aspect of this uncertainty of the actual utilization of the OLA-the triggering of the use of the OLA-creates significant uncertainty for several reasons.
First is the fact that the triggering of the OLA involves multiple players-the "three keys"-and is essentially a political decision. Introducing politics creates uncertainty that depends, inter alia, on which political party is currently in control and when the next election season is. Additionally is the tension, discussed in Part II.B.2, between the FDIC's insistence that the OLA will be used only in "extraordinary circumstances" and those assets are treated, there has to be some continuity of operations and businesses for some period of time."). 213 SPOE Notice, supra note 58. 214 See supra notes 79-83 and accompanying notes.
the general view that neither traditional bankruptcy nor private market solutions will be able to effectively handle a SIFI failure. 215 Although the mandate to align the OLA with the Bankruptcy Code 216 and the "no worse off than in liquidation" 217 requirement may alleviate the importance of this decision to some degree, there remain key differences between the two resolution regimes that make the decision an important one. Most significantly, as discussed above are the guaranteed use of the OLF and the mechanisms that support the SPOE strategy, both of which create a distinguishable advantage to those SIFIs being resolved under the OLA over those forced to resolve themselves under the Bankruptcy Code without such protections.
In light of this, it becomes even clearer why the FDIC has been unwavering with regard to its position that the Bankruptcy Code is, indeed, preferable to resolution under the OLA. If the market truly believes that traditional bankruptcy will, in fact, be used to let a firm fail in most cases, many of the moral hazard problems discussed above will not be such an issue. There will be no guarantee of the OLF because resolution under the OLA is not guaranteed. Similarly, there will be no guarantee of subsidiary creditor protection because a resolution utilizing a SPOE approach is not guaranteed. 218 Furthermore, general market discipline will resurface and the TBTF subsidy will shrink if creditors truly believe they are exposed to some degree of default risk and bail-in in that their debtor SIFIs will be subjected to the Bankruptcy Code if they do fail. However, to the extent that resolution of a SIFI under the current Bankruptcy Code is simply not a credible option for these firms without breaking them down and to the extent that any new changes to the Bankruptcy Code would not eliminate the potential moral hazard problems posed by the OLA (because they, too, involve government funding), such moral hazard as discussed above may, indeed, be unavoidable if financial stability is to be ensured. 215 See supra notes 71-78 and accompanying text. 216 Dodd-Frank Act § 209. 217 Id. § 210(d)(2). 218 However, if the FDIC and Federal Reserve do establish minimum holding company unsecured debt requirements, a SPOE approach shielding subsidiary creditors may be effectuated effectively even through a traditional bankruptcy resolution. The guarantee of this approach, however, will not be maintained.

IV. CONCLUSION
Many problems remain to be addressed by the FDIC in its continued promulgation of rules outlining the contours of this new resolution regime. In terms of its ability to ensure financial stability of the market in the case of a SIFI failure, it is questionable whether the OLA even has the ability to truly deal with contagious panics like that which occurred in 2008. Moreover, several key provisions of the OLA remain unclear such that they may foster uncertainty in the market, which could in fact spur a panic rather than contain one in the case of a near SIFI failure. It is also clear that significant work remains to be done to achieve assurances of cross-border coordination necessary during a G-SIFI resolution.
It may indeed be the case that binding agreements with foreign regulators are the only way to guarantee such coordination. Additionally, the industry and public alike remain skeptical regarding the usefulness of Section 165(d) Resolution Plans and doubt regulators' willingness to utilize this planning process to preemptively force SIFI restructuring that would simplify firm organizations to prevent initial failures altogether.
Moral hazard problems also continue to permeate the current OLA resolution strategy suggested by the FDIC. TBTF persists in the possible use of the OLF to indirectly inject capital into subsidiaries and market discipline remains weak due to the de-facto subsidy that the SPOE approach seems to provide for subsidiary creditors. How these issues will be resolved may only be discovered if and when the next SIFI fails and if the regulators choose to resolve it under the OLA. Until then, the dialogue between regulators, politicians, finance professionals, lawyers, and academics will continue, seeking to eke out the theoretical ideal orderly liquidation of a significantly important financial institution.