Big Bank Bankruptcy Bill Clears U.S. House

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By Daniel Gill

The U.S. House passed legislation on April 5 that would create a new bankruptcy process for large financial institutions—those with assets of at least $50 billion.

Rep. Tom Marino (R-Pa.), chief sponsor of the Financial Institution Bankruptcy Act of 2017 ( HR 1667), stressed the bipartisan nature of the legislation before it passed on a voice vote.

He said it will help ensure stability in financial markets in the event of an insolvency of a significantly large financial institution, like Lehman Brothers, which went bankrupt in 2008 amid the global financial crisis.

The House approved similar legislation to amend the Bankruptcy Code last year, but the Senate did not act. Its prospects there this time are uncertain.

The measure proposes to work on a super-fast basis and provide for a creation of a temporary “bridge company” to receive the financial institution’s assets. Operating subsidiaries would continue to operate out of bankruptcy, reducing the amount of disruption to credit markets.

Cases would be assigned to a bankruptcy judge picked from a pre-selected pool of judges chosen for their experience, ability and willingness to handle such challenging, fast-paced cases.

House Judiciary Committee Chairman Bob Goodlatte (R-Va.) and other members of that panel stressed at a March 29 hearing that the proposal doesn’t strip banking regulators of powers the Wall Street reform law known as Dodd-Frank granted them to unwind lenders outside the bankruptcy system.

‘Works With' Dodd-Frank

Prior to the House vote, Goodlatte said the bill would ensure that taxpayers won’t have to rescue the next failing financial firm, with the risk of loss instead being focused on shareholders and creditors.

The legislation would be a “complement” to Dodd-Frank, according to Rep. John Conyers of Michigan, the top Democrat on the Republican-led Judiciary Committee.

It would provide an alternative to a process established as part of the 2010 law enacted because of the financial crisis that gives the government authority to intervene and provide temporary funding when a U.S. bank fails.The bankruptcy legislation was brought to the floor under “suspension of the rules,” a procedure which requires a two-thirds vote for passage and allows no floor amendments.

—With assistance from Elizabeth Dexheimer and Diane Davis.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com.

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