Does Bankruptcy Law Need to be Reformed for Large Financial Institutions? (H.R. 1667)
Do you support or oppose this bill?
What is H.R. 1667?
(Updated April 10, 2018)
This bill would establish a new bankruptcy process for financial institutions that have more than $50 billion in assets. It seeks to assist larger institutions that may be too complex to resolve a bankruptcy under existing law, and would apply to bank holding companies or other corporations that meet both the $50 billion asset threshold and annual revenue requirements.
The new process would be created within Chapter 11 of the bankruptcy code as subchapter five. It would begin with a covered financial institution filing for bankruptcy and the appointment of a bankruptcy judge to oversee proceedings. A bridge company would be created to receive the bank’s property, and could also receive the its unresolved contracts if certain conditions are met. Licenses, permits, and registrations belonging to the financial institution would be transferred to the bridge company — and would be exempt from securities laws. A special trustee would be appointed by the court to hold the financial institution’s equity securities for the institution’s benefit.
A subchapter five case could be converted to a Chapter 7 bankruptcy where the institutions assets are liquidated if a special trustee has been appointed, the court finds that it’d be in the best interest of creditors, and the transfer has been approved.
The Chief Justice of the U.S. Supreme Court would be required to designate at least three district judges in at least four circuits to serve on a panel to hear appeals in subchapter five bankruptcies. The Chief Justice would also be required to designate a panel of at least 10 bankruptcy judges.
Argument in favor
This bill is a commonsense, bipartisan fix to bankruptcy law that will let courts resolve the complex bankruptcies of financial institutions that have over $50 billion in assets in an equitable manner.
Argument opposed
There's no need to reform bankruptcy law for dealing with bankruptcies at systemically important financial institutions. Just because a bill has bipartisan support doesn't mean it's a valid policy proposal.
Impact
Financial institutions with more than $50 billion in assets; courts; judges appointed by the Chief Justice to oversee these cases.
Cost of H.R. 1667
A CBO cost estimate is unavailable.
Additional Info
In-Depth: Prior to a a subcommittee hearing on this bill, House Judiciary Committee Chairman Bob Goodlatte (R-VA) released the following statement:
“The bill is calibrated carefully to provide transparency, predictability and judicial oversight in a process that must be executed quickly and in a manner that is responsive to potential systemic risk. Additionally, the bill incorporates the ‘‘single point of entry’’ approach, which facilitates a quick transfer of the assets and some of the liabilities of the financial institution’s holding company to a newly formed bridge company. The consensus of experts in public and private industry believes this is the most effective and feasible method to resolve a financial institution that has a bank holding company.”
During the 114th Congress, this legislation unanimously passed the House Judiciary Committee on a 25-0 vote, and passed the House on a voice vote. Currently, the bill has the support of three cosponsors, including two Democrats and one Republican.
Media:
- House Judiciary Committee Press Release
- Subcommittee on Regulatory Reform, Commercial and Antitrust Law Hearing
- Economics One (In Favor)
(Photo Credit: Flickr user Falcon_33)
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