KeyBank 2014 Annual Report Download - page 26

Receivership of certain SIFIs
The Dodd-Frank Act created a new resolution regime, as an alternative to bankruptcy, known as the “orderly
liquidation authority” (“OLA”) for certain SIFIs, including BHCs and their affiliates. Under the OLA, the FDIC
would generally be appointed as receiver to liquidate and wind up a failing SIFI. The determination that a SIFI
should be placed into OLA receivership is made by the U.S. Treasury Secretary, who must conclude that the SIFI
is in default or in danger of default and that the SIFI’s failure poses a risk to the stability of the U.S. financial
system. This determination must come after supermajority recommendations by the Federal Reserve and the
FDIC, and consultation between the U.S. Treasury Secretary and the President.
If the FDIC is appointed as receiver under the OLA, its powers and the rights and obligations of creditors and
other relevant parties would be determined exclusively under the OLA. The powers of a receiver under the OLA
are generally based on the FDIC’s powers as receiver for insured depository institutions under the FDIA. Certain
provisions of the OLA were modified to reduce disparate treatment of creditors’ claims between the U.S.
Bankruptcy Code and the OLA. However, substantial differences between the two regimes remain, including the
FDIC’s right to disregard claim priority in some circumstances, the use of an administrative claims procedure
under OLA to determine creditors’ claims (rather than a judicial procedure in bankruptcy), the FDIC’s right to
transfer claims to a bridge entity, and limitations on the ability of creditors to enforce contractual cross-defaults
against potentially viable affiliates of the entity in receivership. OLA liquidity would be provided through credit
support from the U.S. Treasury and assessments made, first, on claimants against the receivership that received
more in the OLA resolution than they would have received in ordinary liquidation (to the full extent of the
excess), and second, if necessary, on SIFIs, like KeyCorp, utilizing a risk-based methodology.
In December 2013, the FDIC published a notice for comment regarding its “single point of entry” resolution
strategy under the OLA. This strategy involves the appointment of the FDIC as receiver for the SIFI’s top-level
U.S. holding company only, while permitting the operating subsidiaries of the failed holding company to
continue operations uninterrupted. As receiver, the FDIC would establish a bridge financial company for the
failed holding company and would transfer the assets and a very limited set of liabilities of the receivership
estate. The claims of unsecured creditors and other claimants in the receivership would be satisfied by the
exchange of their claims for the securities of one or more new holding companies emerging from the bridge
company. The FDIC has not taken any subsequent regulatory action relating to this resolution strategy under
OLA since the comment period ended in March 2014.
Depositor preference
The FDIA provides that, in the event of the liquidation or other resolution of an insured depository institution, the
claims of its depositors (including claims of its depositors that have subrogated to the FDIC) and certain claims
for administrative expenses of the FDIC as receiver have priority over other general unsecured claims. If an
insured depository institution fails, insured and uninsured depositors, along with the FDIC, will be placed ahead
of unsecured, nondeposit creditors, including the institution’s parent BHC and subordinated creditors, in order of
priority of payment.
Resolution plans
BHCs with at least $50 billion in total consolidated assets, like KeyCorp, are required to periodically submit to
the Federal Reserve and FDIC a plan discussing how the company could be rapidly and orderly resolved if the
company failed or experienced material financial distress. Insured depository institutions with at least $50 billion
in total consolidated assets, like KeyBank, are also required to submit a resolution plan to the FDIC. These plans
are due annually by December 31 of each year. For 2014, KeyCorp and KeyBank elected to submit a joint
resolution plan given Key’s organizational structure and business activities and the significance of KeyBank to
Key. This resolution plan, the second required from KeyCorp and KeyBank, was submitted on December 2,
15