This chapter looks at the history and fundamental elements of resolution authority as it has been developed and used in the United States. The goal of resolution authority in the United States has been to deal with failed banks and other financial institutions in a manner that stems runs, avoids contagion and preserves critical operations, the same goal as deposit guarantee schemes. First introduced in the United States in 1933 as part of the deposit insurance programme for banks, resolution authority was originally little more than the method by which the Federal Deposit Insurance Corporation honoured its obligations to insured depositors before evolving to its current state. Resolution authority, as conceived in the United States, has two principal components—the core resolution powers and the claims process. The core resolution powers consist of the authority to quickly separate the assets and viable parts of a failed bank's business (the good bank) from its capital structure liabilities (the bad bank), so that its critical operations are preserved and runs and contagion are avoided. It is virtually always completed in the United States over a weekend commonly known as resolution weekend. The claims process involves determining the validity and amount of the claims of individual holders of capital structure liabilities in accordance with ordinary principles of due process and distributing the residual value of the good bank to such holders in satisfaction of their claims. The claims process typically takes at least six to nine months to be completed in order to comply with ordinary principles of due process for potential claimants.
