Financial Scholars Oppose Eliminating 'Orderly Liquidation Authority' as Crisis-Avoidance Restructuring Backstop

13 Pages Posted: 4 Jun 2017 Last revised: 16 Sep 2017

See all articles by Jeffrey N. Gordon

Jeffrey N. Gordon

Columbia Law School; European Corporate Governance Institute (ECGI)

Mark J. Roe

Harvard Law School

Date Written: May 23, 2017

Abstract

This letter, written to the chairs and ranking members of the Senate and House Banking and Judiciary committees, analyzes why substituting the bankruptcy process now proposed for Dodd-Frank’s orderly liquidation authority risks allowing financial firm failure, such as we experienced in 2009, to get out of control, leading to or exacerbating an economic downturn. “Local” fixes can deal with real and perceived problems, such as the potential for a bail-out, in Dodd-Frank’s Orderly Liquidation Authority, without eliminating OLA’s capacity to avoid or diminish the impact of failure during a financial crisis.

The three main reasons for concluding that bankruptcy isn’t a substitute for regulatory OLA are set forth in the letter. First, the bankruptcy process might well not succeed and, hence, needs a regulatory backup. Second, the bankruptcy process itself cannot succeed without a regulatory apparatus that gets financial firms the right capital structure beforehand. Third, a widespread financial crisis that threatens the failure of multiple financial firms will need coordinated responses, particularly coordination with international regulators, that courts cannot, but the financial regulators can, provide.

The letter was co-signed by 120 academics who focus on bankruptcy and/or banking.

Keywords: financial crisis; Dodd-Frank; single-point-of-entry; orderly liquidation authority; chapter 14; FIBA; SIFI

Suggested Citation

Gordon, Jeffrey N. and Roe, Mark J., Financial Scholars Oppose Eliminating 'Orderly Liquidation Authority' as Crisis-Avoidance Restructuring Backstop (May 23, 2017). Available at SSRN: https://ssrn.com/abstract=2979546

Jeffrey N. Gordon

Columbia Law School ( email )

435 West 116th Street
Ctr. for Law and Economic Studies
New York, NY 10027
United States
212-854-2316 (Phone)
212-854-7946 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Mark J. Roe (Contact Author)

Harvard Law School ( email )

Griswold 502
Cambridge, MA 02138
United States
617-495-8099 (Phone)
617-495-4299 (Fax)

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