Dynamic Resolution of Large Financial Institutions
Thomas H. Jackson
University of Rochester
David A. Skeel Jr.
University of Pennsylvania Law School; European Corporate Governance Institute (ECGI)
2 Harvard Business Law Review 435
U of Penn, Inst for Law & Econ Research Paper No. 13-13
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.
Number of Pages in PDF File: 27
Keywords: Finance, large financial institutions, liquidation, reorganization, administrative resolution, Federal Deposit Insurance Corporation, regulator-brokered sales, bankruptcy judges, reform
JEL Classification: G2, G21, G28
Date posted: April 12, 2013