A Comparison of U.S. Corporate and Bank Insolvency Resolution
Robert R. Bliss
Wake Forest University - Schools of Business
George G. Kaufman
Loyola University Chicago
Economic Perspectives, 2006
FRB of Chicago Working Paper
In the U.S., the insolvency resolution of most corporations is governed by the federal bankruptcy code and is administered by special bankruptcy courts. Most large corporate bankruptcies are resolved under Chapter 11 reorganization proceedings. However, commercial bank insolvencies are governed by the Federal Deposit Insurance Act and are administered by the FDIC. These two resolution processes - corporate bankruptcy and bank receiverships - differ in a number of significant ways, including the type of proceeding (judicial versus administrative); the rights of managers, stockholders, and creditors in the proceedings; the explicit and implicit goals of the resolution; the prioritization of creditors' claims; the costs of administration; and the timeliness of creditor payments. This article elucidates these differences and explores the effectiveness of the procedural differences in achieving the stated goals.
Number of Pages in PDF File: 13
Keywords: Banks; Bankruptcy, Liquidation, Regulated Industries and Administrative LawAccepted Paper Series
Date posted: June 9, 2006
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