Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, April 15, 2012

Lubben on Resolution of Large Financial Firms

Resolution, Orderly and Otherwise: B of A in OLA, by Stephen J. Lubben, Seton Hall University - School of Law, was recently posted on SSRN.  Here is the abstract:

What precisely does it mean to “resolve” financial distress in a complex financial institution? What are the goals – liquidation, reorganization, or simple contagion avoidance? And, more precisely, how might such a resolution look under realistic conditions? This paper begins to examine these issues through a practical exercise: by examining the legal and financial structure of a specific, actual financial institution (Bank of America). What this analysis 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.

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