The Not-As-Good: Uncertainty Lives
The FDIC has anticipated some problems that could arise through the new process and has offered solutions. For example, one issue was that some unsecured creditors might be provided a higher priority than others due to systemic risk or other concerns, but the FDIC assures us that all creditors of a given class will receive the same treatment they would in a Chapter 7 bankruptcy. Preference won't be given to long-term creditors over short-term creditors or vice-versa.
Of course, making that happen at a time when a financial crisis is underway might be a little tough. For example, how can the FDIC accurately determine how much money a bank's assets are worth? It would have to make some good estimates in order to determine how to fairly divide up the money among creditors. This problem is particularly important with regard to creditors that need to collect this money quickly, in order to avoid contagion in the market due to a firm's failure.
This could result in a situation where the FDIC rushes to pay out a creditor, and accidentally awards more than it should have, leaving insufficient funds to fairly pay other creditors what they would be owed under the bankruptcy code. The FDIC has a solution to this, however. It reserves the right to clawback payments to creditors if it paid them too much.
Sounds sensible enough, but there's a problem: creditors will have to worry if some portion of the initial cashflow they received from the FDIC will be clawed back. So really, uncertainty hasn't been reduced much with regard to how creditors will be paid out. Even though they won't have to wait very long to receive money they're owed, compared to how long a bankruptcy court would take to rule, they can't be sure if they'll get to keep all of it until the entire resolution process is complete -- and that could take years too.
The Unsolved: Secured Creditors
The FDIC is humble enough to know when it's facing a tough problem. So it seeks additional comments on several issues. One has to do with payments to secured creditors.
Let's say it's October 2008. Lehman failed, but the resolution authority is in place. You're a creditor holding a secured bond that references a pool of Lehman mortgage assets. The market for those loans is extremely illiquid, so it's next to impossible to get a market price for the assets that doesn't indicate fire sale-type discounts. Should the secured creditor be forced to take a deep haircut such prices imply even if the asset's value rebounds considerably over the next year or two?
Under the FDIC's Interim Final Rule on the resolution authority, secured creditors would be provided a payout based on the value of those assets as of the day the FDIC is appointed receiver. In other words, it would probably occur at precisely the sort of time that the example above imagines.