How to shut down a failing f inancial giant
• Bankruptcy is first option, using prearranged plans called “living wills.”
• If regulators determine bankruptcy would have “serious adverse effects” on U.S. financial stability, they invoke orderly liquidation authority.
• Federal Deposit Insurance Corp. takes over parent company to safely liquidate it.
• Subsidiaries continue to operate during wind-down, using Treasury money if necessary.
• If sale of firm’s assets doesn’t cover winddown cost, money is recovered through assessment on financial industry.
House Financial Choice Act
• Replaces orderly liquidation authority with new section of bankruptcy code designed for large complex financial institutions with more than $50 billion in assets.
• Supreme Court chief justice designates special judges with experience to handle complex financial bankruptcies.
• Cases get expedited treatment.
• Assets are transferred into new company to keep subsidiaries operating.
• Federal programs that could be used to provide emergency funding to a failing firm are repealed or restricted.