It also would provide the government a mechanism for imposing losses on the shareholders and creditors of the firm. Establishing credible processes for imposing such losses is essential to restoring a meaningful degree of market discipline and addressing the too-big-to-fail problem.
The availability of a workable resolution regime also would replace the need for the Federal Reserve to use its emergency lending authority under section 13(3) of the Federal Reserve Act to prevent the failure of specific institutions. Payment, clearing, and settlement arrangements Payment, clearing, and settlement arrangements are the foundation of the nation's financial infrastructure.