Resolution Authority Redux
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Description
The economic and financial crisis of 2007-2009 caused the collapse or near collapse of several Systemically Important Financial Institutions (SIFIs), such as Bear Stearns, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, American International Group (AIG), and Citigroup in the U.S. and many others in the rest of the world. Except for Lehman, these financial giants were not allowed to fail, and many were bailed out by the taxpayers. The debate regarding the desirability of these bailouts will never be settled because it is impossible to assess the systemic consequences that disorderly failures would have had on the financial system and the broad economy. What is clear, however, is that citizens around the world do not want to be presented with the too-big-to-fail dilemma again. The job of regulators is therefore to make the system safer, and to create a process whereby SIFIs can fail in an orderly manner. In 2010, Congress enacted the Dodd-Frank Act, which, among other provisions, took a dual approach to the prevention of systemic collapse. In this discussion, we focus on Dodd-Frank Title I—Systemic Risk Regulation and Oversight—and Title II—Orderly Liquidation Authority (OLA) for Systemic Risk Companies. Title I insists that SIFIs maintain a sound capital structure and plan for dissolution in the event of crisis, i.e., create a Living Will. A Living Will should ensure that a failed bank holding company can be resolved under the US bankruptcy code, as are other corporate debtors.
Source Publication
Regulating Wall Street: CHOICE Act vs. Dodd-Frank
Source Editors/Authors
Matthew P. Richardson, Kermit L. Schoenholtz, Bruce Tuckman, Lawrence J. White
Publication Date
2017
Recommended Citation
Adler, Barry E. and Philippon, Thomas, "Resolution Authority Redux" (2017). Faculty Chapters. 10.
https://gretchen.law.nyu.edu/fac-chapt/10
