A more thorough explanation:

Definition: Title II, also known as the Orderly Liquidation provision of the Dodd-Frank Act, is a process that allows for the quick and efficient liquidation of a large, complex financial company that is close to failing. It provides an alternative to bankruptcy, where the Federal Deposit Insurance Corporation (FDIC) is appointed as a receiver to carry out the liquidation and wind-up of the company. The FDIC is given certain powers as a receiver and a three to five-year timeframe to finish the liquidation process. The purpose of Title II is to protect the financial stability of the American economy, force shareholders and creditors to bear the losses of the failed financial company, remove management that was responsible for the financial condition of the company, and ensure that payout to claimants is at least as much as the claimants would have received under a bankruptcy liquidation.

Example: In 2008, many large financial institutions were in dire financial straits, and the government attempted to preserve some of these institutions with over $1.7 trillion in bailouts. Despite the bailouts, over 250 banks failed in the period from 2008 to 2010, and Lehman Brothers, the fourth-largest investment bank in the United States, filed for bankruptcy, the largest Chapter 11 bankruptcy in U.S. history. In light of the failure of these “too big to fail” institutions, Congress saw the need for a government authority to provide for efficient liquidation of large, complex financial institutions, and to eliminate the potential of future government bailouts.

Explanation: The example illustrates the need for Title II, which was created to prevent future government bailouts for struggling financial institutions. The failure of large financial institutions in 2008 showed that the government needed a process to quickly and efficiently liquidate a large, complex financial company that is close to failing. Title II provides an alternative to bankruptcy and aims to protect the financial stability of the American economy.

Example: Title II provides a claims process to assert claims against a defaulting financial company, and a series of rules to allow for liquidation of assets and the payment of claim holders according to a list of priority payments. Claims are paid in the following order: (1) administrative costs; (2) the government; (3) wages, salaries, or commissions of employees; (4) contributions to employee benefit plans; (5) any other general or senior liability of the company; (6) any junior obligation; (7) salaries of executives and directors of the company; and (8) obligations to shareholders, members, general partners, and other equity holders.

Explanation: The example illustrates the claims process under Title II, which is modeled like the bankruptcy code claims process but has some differences that impact how Title II liquidation will operate. The priority list helps advance the goal of ensuring that the executives, directors, and shareholders bear the losses of the failed company by being last in line to receive payment. Title II includes other provisions to hold executives liable, including the executive clawback provision, which allows the FDIC to recover incentive payment and other compensation made to executives from up to two years prior to the company’s failure.