FDIC Getting New Tools, Are JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C) and Bank of America (NYSE: BAC) Concerned?

During her September 2^nd testimony, FDIC Chairman Sheila Bair expressed the need for new tools. Now, it seems like her wish has been granted.

Under the Dodd-Frank law, the Federal Deposit Insurance Corp. will propose a measure to guide its liquidation powers giving banks three months to meet new standards for part of the $4.2 trillion securitization market. The Dodd-Frank law was enacted in July, and gave the FDIC authority to wind down failing systemically important firms in response to the 2008 credit crisis, when the bankruptcy of Lehman Brothers destabilized markets and forced the U.S. to bail out companies including American International Group Inc., Citigroup (NYSE: C), and others. Bair commented “If these tools had been in place before the recent financial crisis, the FDIC could have avoided the dilemmas it faced in resolving large bank failures in late 2008.”

The FDIC will review the measures at a meeting in Washington today, and has drafted an interim rule outlining how the new resolution powers would treat creditors in the event of a receivership, codify treatment of contingent claims and clarify ambiguities in the law cited by the banking industry. The FDIC board won’t vote on the proposal until the Financial Stability Oversight Council reviews it.

At an FDIC forum on the resolution authority last month, executives from JPMorgan Chase & Co. (NYSE: JPM) and Bank of America Corp. (NYSE: BAC) joined other banks in raising questions about plans for creditor protection and maintaining the integrity of the financial system in the event of a collapse requiring a wind-down. Counterparty risk is regarded as a key issue in the crisis of 2008, as banks were hesitant to lend to eachother amidst the collapsing markets.

In response to a myriad of concerns raised during the last two years, The FDIC proposal would also require additional disclosures by sellers, including the credit and payment performance of its loans. It also would seek disclosure of compensation paid for securitizations. The new rules, which were scheduled to apply starting on Oct. 1, will be implemented on Jan. 1, 2011.

When Dodd-Frank was originally adopted as Congressional Finance Reform, the key question raised at the time was that the real tough decisions weren’t yet made, and the regulators would be left to sift through it all and implement accordingly. Now, those steps are being taken – the FDIC’s actions are designed to stabilize the system as always intended, even if that means denting industry and firm profits in the process.