Analysis of the Taxpayer Protection and Responsible Resolution Act of 2018 (Chapter 14 Financial Institution Bankruptcy Proposal)
7 Pages Posted: 12 Dec 2018
Date Written: November 19, 2018
This is a short analysis of the Taxpayer Protection and Responsible Resolution Act (TPRRA) of 2018, a proposal to amend the Bankruptcy Code add a new Chapter 14 authorizing a single-point-of-entry style resolution of failed bank holding companies. The analysis shows that TPRRA would dangerously increase systemic risk in the U.S. economy by neutering the Dodd-Frank Act's living wills requirement while incentivizing excessive use of qualified financial contracts.
TPRRA makes it all the more likely that Chapter 14 would have to be used, but if Chapter 14 were ever invoked, it would be a disaster. Chapter 14 lacks a mechanism for providing the tens of billions of dollars of liquidity that would be needed immediately by a restructured megabank. The lack of a liquidity facility all be ensures a creditor run once a 48-hour stay is lifted. The result would be the chaos of a second Lehman Brothers, but one in which Main Street creditors would be stuck with Wall Street's tab even as they are denied basic due process.
Keywords: Financial institutions bankruptcy, SPOE, single-point-of-entry, Chapter 14, QFC
Suggested Citation: Suggested Citation