WASHINGTON — Creditors and shareholders will have to absorb some of the losses when the government steps in to dismantle failing financial firms.
The Federal Deposit Insurance Corp. approved the new rule yesterday.
“Shareholders and unsecured creditors should understand that they, not taxpayers, are at risk,’’ FDIC chairman Sheila Bair said.
In the 2008-2009 federal bailouts of big financial firms, many of the companies that had loaned them money had their debts covered by the government.
The 2008 collapse of Lehman Brothers prompted Congress to adopt a new process for dismantling teetering firms. It gave the FDIC authority to wind down troubled firms and sell off their assets to protect the broader system.
The new rule allows the FDIC to make payments to some short-term creditors of the firms, such as to enable the firms to pay employees or utility and software companies that provide essential services.
The overhaul law mandated that regulators write hundreds of rules, many of them to be in final form by July and others by next January.
Also yesterday, regulators including Bair, Treasury Secretary Timothy Geithner, and Federal Reserve chairman Ben Bernanke began laying out how they will enact other key provisions of the law, including a limit on banks’ investment activities.
