to withdraw on demand or short order during a financial panic. In connection with recapitalizing the operating subsidiaries of a financial holding company, it refers to all items on the right side of the parent company’s balance sheet, other than specifically excluded items. Maturity Transformation. Maturity transformation is the vitally important process by which banks and other financial institutions fund themselves with demand deposits or other money market instruments and use these funds to make long-term loans or invest in other illiquid assets. Without maturity transformation, our modern economy would grind to a halt. Money market instruments. Demand deposits, repos, asset-backed commercial paper and other instruments that provide money or money-like claims against financial institutions, governments and other entities. Moral hazard. The phenomenon by which individuals and firms engage in riskier behavior if someone else, such as an insurance company or the government, bears the cost of that risk in their stead. OLA. See Orderly Liquidation Authority. OLF. See Orderly Liquidation Fund. Open bank assistance. The provision of government assistance to a bank that has not been closed or placed into a resolution proceeding, including injections of capital and guarantees of obligations. See bailout. Operating liabilities. A firm’s liabilities that are repayable upon demand or short order, financial contracts and other short-term debt, other than derivative contracts that were structured to look like operating liabilities in form, but are capital structure liabilities in substance. Operating liabilities include obligations on demand deposits, checking accounts, repurchase agreements and other financial contracts (except any that are operating liabilities in form but capital structure liabilities in substance), clearance and settlement transactions, and collateral and margin requirements. The holders of a firm’s operating liabilities generally have the legal right and practical ability to run during a financial panic. See capital structure liabilities. Orderly liquidation. A liquidation of a financial firm that does not result in a fire sale liquidation of its assets, but instead results in a recapitalization or orderly wind down of the financial firm. Orderly Liquidation Authority. The authority for resolving non-bank financial companies set forth in Title II of the Dodd-Frank Act. It is expressly designed as a last-resort supplement to the Bankruptcy Code, which remains the preferred law to govern the insolvency or other failure of most nonbank financial institutions. OLA may only be legally invoked if certain conditions are satisfied, including that the secretary of the Treasury has determined that allowing the Bankruptcy Code to liquidate or reorganize a particular financial company under prevailing financial conditions “would have serious adverse effects
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