Michael Krimminger has long believed in making the world safe for banking. At the Federal Deposit Insurance Corporation, he served as policy advisor to the chairman beginning in 2006, and later became deputy to the chairman for policy. In November 2010, he was tapped as the agency’s general counsel—just months after the Dodd-Frank Act, the largest financial reform package in U.S. history, became law. Krimminger’s efforts were focused on implementing the law’s Title II resolution authority, as well as the Title I provisions for the creation of the Financial Stability Oversight Council and living wills.

Now that Dodd-Frank has hit the two-year mark, Krimminger, who in May left the FDIC for Cleary Gottlieb Steen & Hamilton, sat down with CorpCounsel.com to discuss his take on regulation, rule-writing, and risk. “You can’t eliminate risk from banking,” he says. “The question, from a regulator’s perspective, is making sure the banks have thought through the risks and put in place appropriate controls on the risks.” Part one of an edited conversation follows below.

CorpCounsel.com: What did you have to learn in order to regulate banks?

Michael Krimminger: I don’t think they have a course for that in school [laughs]. There is an art, if you will, to rule writing, but it is also something that primarily is learned in practice. I came at it from a slightly different perspective than most people, because I didn’t start at the staff level at the FDIC in any kind of bank regulatory role; I started out doing appellate litigation, then shifted into management roles.

It was really developing an understanding over time of how to translate policy goals into regulatory text. I’ve always felt that government and industry have to play mutually supporting roles. Because without government setting clear rules, the market can’t function most efficiently—and without the market, obviously, you don’t have an economy. They need to work in tandem.

CC: So Dodd-Frank passes and you become general counsel of the FDIC in November 2010. How did you think through what you needed to do?

MK: I had a pretty good idea because I had been the FDIC’s primary negotiator and discussant in the development of Dodd-Frank throughout 2009 and 2010. I had worked very closely with the other regulators and with Treasury before it released its initial white paper for Dodd-Frank, and then worked very closely with other regulators and Treasury, as well as House and Senate staff and members, to talk about what were the various policy choices and legal issues created by this statute.

CC: Did you have a sense that it would be challenging to put Dodd-Frank’s provisions into action?

MK: No question. At the FDIC and at other regulators, staff developed detailed plans for how to try to complete all of these rules within the statutory deadlines. And for those rules that one or two agencies were responsible for, the percentage of completed rules within the designated time frames is pretty high. What gets complicated, of course, is when you have rules that involve four or five different regulatory agencies that come at the issue with different perspectives—things like the Volcker Rule, and issues like the risk-retention rule for dealing with securitization. Those have taken a very long time because you have to get everybody on the same page.

CC: When you left the FDIC, the Volcker Rule was all over the news, given the recent trading loss at JPMorgan. Any thoughts on what’s in store for the rule?

MK: There’s clearly a recognition by the regulators that the Volcker rule needs to be simplified and clarified. That’s both with regards to the prohibition on proprietary trading, as well as to the prohibition on significant ownership of hedge funds and investment funds.

Of course, events—both in the political and policy realm—can have an impact on how the regulators actually respond. There’s no question, however, that financial institutions have to be able to hedge their risk.

CC: How are living wills going to reduce risk in the market?

MK: In the U.S., we have, under Dodd-Frank, Title I–section 165 (d), a joint rule by the FDIC and the Federal Reserve requiring the largest financial companies, with over $50 billion in assets, to prepare living wills to show how they could be resolved under the Bankruptcy Code. It’s a very tough test and a very tough process, designed, under the statute, to make the companies think hard about their risks, how the business could be simplified and streamlined in a way that would make it easier to resolve, and how they could try to limit the potential for a Lehman-like rapid unwind and collapse that could have huge consequences for the economy.

Separate from that is the work being done by the FDIC under Title II. If a major company had failed on July 22, 2010, the FDIC would have had the responsibility to resolve it. I helped put together the structure for what’s now the Office of Complex Financial Institutions. Working with Jim Wigand, who’s head of that office, we spent a huge amount of time thinking through strategies for how to do a resolution of a large U.S. financial company. The goal is to make sure that you can resolve one of these companies and minimize the consequences for the overall economy from that failure by maintaining the operations of that company that provide credit remediation or payments and settlements and other types of transactions.

That’s been coordinated very closely with regulators in Europe—particularly with the United Kingdom. There’s a very close working relationship between the FDIC, the Federal Reserve, the Bank of England, and the Financial Services Authority in the U.K. Because upwards of 80 percent-plus of U.S. companies’ cross-border exposures—cross-border assets, cross-border funding flows—come through London. So if you have a coordinated process between the U.S. and the U.K., you’ve gone a long way towards achieving a process that will be coordinated on an international stage.

CC: How are these regulators able to get along so well?

MK: Up until mid-2008, many had the attitude that European regulators had worked all these issues out, there’d be a coordinated resolution if any European company got in trouble, and it was the Americans who were having problems. I never believed that because I had spent enough time looking at European national laws to recognize that you can have all the regulation you want at the E.U. level, but the national laws are going to butt heads and conflict with each other. Plus, if you are a national regulator, no matter how many memorandums of understanding [MOU] you have, ultimately who is your constituency? It’s not the European community of nations. Your constituents are your domestic residents, whether its Belgium or France or Holland. And the reality is they did a nice MOU in May of 2008 and in the fall of 2008, and nobody even looked at it.

It was 2008 that made everyone realize, that this could happen. And yes, no one had it figured out. So now, largely under the auspices of the Financial Stability Board, the countries that are the core financial hubs—such as Germany, France, and Japan—are also developing resolution plans. There’s a lot of work still to be done, but there is more ground for optimism today than there has been in the past. We have a long way to go, but countries are beginning to work together on resolution issues at least.

See also: “Reflections on Dodd-Frank, Two Years Later,” CorpCounsel, July 2012.