Does Bankruptcy Law Need to be Reformed for Large Financial Institutions? (H.R. 2947)

What is H.R. 2947?

(Updated July 20, 2020)

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. 2947

The CBO estimates that enacting this bill wouldn’t increase spending.

Additional Info

In-Depth: Prior to a Judiciary Committee hearing on this bill, Chairman Bob Goodlatte (R-VA), sponsoring Rep. Dave Trott (R-MI), Ranking Member John Conyers (D-MI), and Subcommittee Chairman Tom Marino (R-PA) released the following joint statement:

“This bill was carefully calibrated to strengthen our nation’s bankruptcy laws and to ensure that the bankruptcy process is well equipped to resolve companies of all operations and sizes. This legislation enhances the Bankruptcy Code and its ability to resolve financial institutions in an efficient and value-maximizing manner for the benefit of the U.S. and global economies, employees, creditors, and customers.”

This legislation was passed unanimously by the House Judiciary Committee on a 25-0 vote, and has the bipartisan support of four cosponsors — including three Republicans and a Democrat.

Media:

• House Judiciary Committee Press Release
• CBO Cost Estimate
• Bloomberg
• Securities Industry and Financial Markets Association