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The FDIC and Treasury have issued a notice of proposed rulemaking to implement applicable provisions of the Dodd-Frank Act.  In accordance with the requirements of the Dodd-Frank Act, the proposed rules govern the calculation of the maximum obligation limitation, or MOL, as specified in section 210(n)(6) of the Dodd-Frank Act.  The MOL limits the aggregate amount of outstanding obligations that the FDIC may issue or incur in connection with the orderly liquidation of a covered financial company.

Title II of the Dodd-Frank Act establishes an Orderly Liquidation Authority, or OLA, to resolve a large interconnected financial company upon a determination that its failure and resolution under otherwise applicable law would have serious adverse effects on financial stability in the United States and the use of OLA would avoid or mitigate such adverse effects. Under section 201(a)(8) of the Dodd-Frank Act, a ‘‘covered financial company’’ is a ‘‘financial company’’ for which a systemic risk determination has been made pursuant to section 203(b) of the Dodd-Frank Act but does not include an insured depository institution. Once the Secretary of the Treasury makes a systemic risk determination, the FDIC can be appointed as receiver of the covered financial company.

In order for the FDIC to fulfill its obligations as receiver of a covered financial company, it may be necessary for the FDIC to borrow funds from the Treasury.  As noted, the MOL limits the aggregate amount of these obligations.  The FDIC and Treasury have determined that it would be most appropriate to adopt regulations that closely follow the statutory language for calculating the MOL, while defining certain terms referenced in the statute and seeking comment on those definitions. The terms in this proposed rule are defined solely for the purpose of calculating the MOL and are not applicable to any other statutory or regulatory requirements.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

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