Dynamic Resolution of Large Financial Institutions
2 Harvard Business Law Review 435
27 Pages Posted: 12 Apr 2013
Date Written: 2012
One of the more important issues emerging out of the 2008 financial crisis concerns the proper resolution of a systemically important financial institution. In response to this, Title II of Dodd-Frank created the Orderly Liquidation Authority, or OLA, which is designed to create a resolution framework for systemically important financial institutions that is based on the resolution authority that the FDIC has held over commercial bank failures. In this article, we consider the various alternatives for resolving systemically important institutions. Among these alternatives, we discuss OLA, a European-style bail-in process, and coerced mergers, while also extensively focusing on the bankruptcy code. We argue that implementing several discrete modifications to Dodd-Frank, as well adopting an ambitious Chapter 14 proposal written by a working group at the Hoover Institution is the best way forward for establishing a strong resolution framework.
Keywords: Finance, large financial institutions, liquidation, reorganization, administrative resolution, Federal Deposit Insurance Corporation, regulator-brokered sales, bankruptcy judges, reform
JEL Classification: G2, G21, G28
Suggested Citation: Suggested Citation