It stands for Single Point of Entry, and I wrote about it here. Peter Wallison and Paul Kupiec say that it won’t work.

Our analysis of the largest banks shows that most of these institutions could fail without causing their parent BHCs to be in default of danger of default. For the parent BHCs to be in danger of default, they would have to experience massive losses simultaneously in many or all of their bank and nonbank subsidiaries.

…For BHCs that will clearly become insolvent if their bank subsidiary fails, the SPOE can be invoked, but the mechanism it uses to prevent financial market disruptions is an extension of the government safety net…It will protect all large bank 39 creditors from losses by transferring bank losses to the parent BHC’s creditors and potentially to unaffiliated institutions that will be assessed to repay the OLF. Here, the SPOE strategy—because it promises to bail out failing large banks— reinforces the TBTF problem at the largestbanking institutions.

Think of two cases:

1. A bank subsidiary is in bad shape, but the overall holding company has positive value.
2. The holding company is insolvent.

I thought, perhaps naively, that the SPOE approach is not worth anything in case (2), but that it was supposed to apply to case (1).

However, Wallison and Kupiec say that the FDIC lacks the legal authority to implement SPOE in case (1). Their argument is that the FDIC was given a mandate to come up with a way to liquidate a failed bank, and SPOE is a way to recapitalize a failed bank, using the net worth of the holding company.

I think that the larger problem is the one I raised in my earlier post. I think that you tend to jump straight from an apparently solvent bank inside a solvent holding company to case (2) without stopping at case (1).

Perhaps I will gain more understanding of SPOE by watching the video of this event.