How to shut down a fail­ing f inan­cial gi­ant

Los Angeles Times - - MONDAY BUSINESS -

Dodd-Frank

• 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.

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