The Dodd-Frank Act, Commentary and Insights by Skadden, Arps, Slate, Meagher & Flom LLP & Associates--Chapter1: Orderly Liquidation Authority

Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 4173, 111th Cong. (2010) (the "Dodd-Frank Act" or the "Act"), titled "Orderly Liquidation Authority," creates a new federal receivership process pursuant to which the FDIC may serve as receiver for large, interconnected financial companies, including broker-dealers, whose failure poses a significant risk to the financial stability of the United States. This article provides an overview and summary of the key provisions of this new liquidation regime.

Entities Subject to the Act: Financial Companies

Only entities that are "financial companies" are eligible to be placed into receivership under the Act. There are four categories of financial companies. The first category includes "bank holding companies," as defined in section 2(a) of the BHCA.2 Under this definition, a bank holding company includes any company that has control over any bank or over any company that is or becomes a bank holding company by virtue of the BHCA.

The second category of financial company includes nonbank financial companies supervised by the Board of Governors, including nonbank financial companies that the Council has determined must be supervised by the Board of Governors. Nonbank financial companies are companies "predominantly engaged in financial activities." A company satis­fies this definition if it and all of its subsidiaries derive either 85% of their annual gross revenues or 85% of their consolidated assets from activities that are "financial in nature" or incidental to a financial activity, or from the ownership or control of one or more insured depository institutions. [footnotes & citations omitted] 

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