Washington, D.C. – A new report by the Bipartisan Policy Center’s (BPC) Financial Regulatory Reform Initiative concludes that a combination of reforms to the Bankruptcy Code, coupled with the new authorities in Dodd-Frank, have the capability to solve the problem of how to resolve a failing systemically important financial institution without causing a financial panic or crisis.
The report, Too Big to Fail: A Path Forward, analyzes Dodd-Frank’s attempt to end too-big-to-fail. This report was written by the co-chairs of the initiative’s Failure Resolution Task Force, led by John Bovenzi, a partner at Oliver Wyman, Randall Guynn, a partner at the law firm of Davis Polk and Wardwell, and Thomas Jackson, a professor at the University of Rochester.
The report examines the problems associated with failing institutions, specifically how to make sure that taxpayer-funded bailouts are never used again. It finds this can be done without resorting to taxpayer-funded bailouts so long as the necessary liquidity is available to failing financial firms, under both the Bankruptcy Code and the new powers provided under Dodd-Frank if certain key changes are made.
The report also addresses failures of firms with large international footprints, arguing for greater international cooperation and against so-called ‘ring-fencing’ of assets where each nation tries to break off its own section of the failed company. Finally, the report looks at ways to improve regulation, reduce duplication and eliminate inefficiencies in resolution planning, the so-called ‘living wills’ put into place in Dodd-Frank.
To read the full report, click here.
BPC’s Financial Regulatory Reform Initiative is considering five aspects of financial reform: systemic risk, failure resolution, capital markets, consumer financial protection, and regulatory architecture. Today’s report is the first in a series of reports that will be released on these issues.