How big bank might be wound down
The debate over too big to fail has kicked up again.
To add to the discussion, a professor at Seton Hall Law School has issued a paper that takes a look at how Bank of America might be liquidated should it run into financial problems ahead--an interesting hypothetical, to be sure. The general regulatory view is that the living wills that banks are required to submit in conjunction with the Dodd-Frank Orderly Liquidation Process will suffice in winding down large troubled banks without taxpayer support.
However, what the study "reveals is that no matter how complex Lehman was, the remaining 'too big to fail' financial institutions are infinitely more complex. The exercise reveals some serious doubts about the ability of Dodd-Frank to perform in its most idealized way, it also shows how the Bankruptcy Code, at least as currently drafted, would be equally unsuited to the task. Moreover, this paper explain why adapting the code to the resolution of large financial institutions would involve something far more substantial than a few 'tweaks,' as is often suggested. Ultimately it would involve adopting something that takes many features from both OLA and Chapter 11, while applying the name bankruptcy to the resulting beast."
- here's a column the professor wrote