U.S. Corporate and Bank Insolvency Regimes: An Economic Comparison and Evaluation

42 Pages Posted: 26 Jan 2006

See all articles by Robert R. Bliss

Robert R. Bliss

affiliation not provided to SSRN

George G. Kaufman

Loyola University Chicago

Date Written: January 2006

Abstract

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. These differences derive from perceptions that banks are special. This paper elucidates these differences, explores the effectiveness of the procedural differences in achieving the stated goals, and considers the potential economic consequences of the different structures.

Keywords: Bankruptcy, bank insolvency, insolvency resolution

JEL Classification: G21, G33, K23

Suggested Citation

Bliss, Robert R. and Kaufman, George G., U.S. Corporate and Bank Insolvency Regimes: An Economic Comparison and Evaluation (January 2006). FRB of Chicago Working Paper No. 2006-01, Available at SSRN: https://ssrn.com/abstract=878355 or http://dx.doi.org/10.2139/ssrn.878355

Robert R. Bliss (Contact Author)

affiliation not provided to SSRN

George G. Kaufman

Loyola University Chicago ( email )

820 North Michigan Avenue
School of Business
Chicago, IL 60611
United States
312-915-7075 (Phone)
312-915-8508 (Fax)

HOME PAGE: http://www.luc.edu/faculty/gkaufma/

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