Is the bankruptcy code an adequate mechanism for resolving the distress of systemically important institutions?

Temple Law Review

Volumn 82, Issue 2, 2009, Pages 449-465

  Morrison, Edward R ^a  

^a The Earth Institute at Columbia University   (United States)

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EID: 79251577377     PISSN: 08998086     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (109)

1. See generally DEP'T OF THE TREASURY, FINANCIAL REGULATORY REFORM: A NEW FOUNDATION (2009), available at http://www.financialstability.gov/docs/regs/ FinalReport-web.pdf [hereinafter FINANCIAL REGULATORY REFORM] (outlining Obama administration's proposed reforms that would give government more authority to regulate financial institutions through risk evaluation and monitoring); cf. DEP'T OF THE TREASURY, DIVISION D-IMPROVEMENTS FOR FINANCIAL CRISIS MANAGEMENT, TITLE XII- ENHANCED RESOLUTION AUTHORITY (proposed 2009), available at http://www.financialstability.gov/docs/regulatory reform/title-XII-resolution- authority-072309.pdf [hereinafter DIVISION D] (providing for emergency assistance from Department of Treasury to failing corporations).
2. Wall Street Reform and Consumer Protection Act of 2009, H.R. 4173, 111th Cong., available at http://financialservices.house.gov/Key-Issues/Financial- Regulatory-Reform/FinancialRegulatoryReform/hr4173eh.pdf; Restoring American Financial Stability Act of 2009, 111th Cong. (discussion draft), http://banking.senate.gov/public/-files/AYO09D44-xml.pdf.
3. FINANCIAL REGULATORY REFORM, supra note 1, at 23.
4. E.g., Regulating and Resolving Institutions Considered "Too Big to Fail ": Hearing Before the S. Comm. on Banking, Housing, & Urban Affairs, 111th Cong. 12-13 (2009) (statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation), http://banking.senate.gov/public/index. cfm?FuseAction= Files.View&FileStore-id=4deb17aa-b8b8-4bc1-82ef- 4c57388acf90.
5. See, e.g., Christopher Condon, Reserve Primary Money Fund Falls Below $1 a Share, BLOOMBERG.COM, Sept. 16, 2008, http://www.bloomberg.com/apps/ news?pid=20601087&sid=a5O2y1go 1GRU (reporting Reserve Primary Fund's historic loss resulting from Lehman's devalued commercial paper).
6. Consumer Protection and Regulatory Enhancement Act, H.R. 3310, 111th Cong. (2009), available at http://www.govtrack.us/congress/billtext.xpd?bill= h111-3310; REPUBLICAN MEMBERS OF THE H. COMM. ON FIN. SERVS., 111TH CONG., FINANCIAL SERVICES COMMITTEE REPUBLICAN PLAN FOR REFORMING THE FINANCIAL REGULATORY SYSTEM (2009), http://republicans.financialservices.house.gov/images/ stories/fscre pregreformplan.pdf.
7. See infra Sections II and III for a discussion of the current bankruptcy-based approach and other non-bankruptcy approaches.
8. See generally Franklin R. Edwards & Edward R. Morrison, Derivatives and the Bankruptcy Code: Why the Special Treatment?, 22 YALE J. ON REG. 91 (2005) (discussing how exemptions afforded to financial contracts under the Bankruptcy Code are meant to prevent systemic risk);
9. Edward R. Morrison & Joerg Riegel, Financial Contracts and the New Bankruptcy Code: Insulating Markets from Bankrupt Debtors and Bankruptcy Judges, 13 AM. BANKR. INST. L. REV. 641 (2005) (same, but emphasizing 2005 reforms that expanded the exemptions).
10. Morrison & Riegel, supra note 8, at 645.
11. Id. at 642; Edwards & Morrison, supra note 8, at 97-98.
12. These funds include the Reserve Primary Fund (the oldest money market fund) and BNY Mellon Institutional Cash Reserves (a securities lending fund). See Condon, supra note 5 (reporting that Reserve Primary Fund dropped below one dollar per share)
13. Matthew Keenan & Christopher Condon, BNY Mellon, Reserve Primary Rattle Fund Investors, BLOOMBERG.COM, Sept. 18, 2008,http://www.bloomberg.com/ apps/news?pid=20601087&sid=aLCm3FmG9zX4 (reporting that BNY Mellon's Institutional Cash Reserves fell below one dollar per share)
14. See Serena Ng et al., Lehman Swap Payments Look Bigger than Expected, WALL ST. J., Oct. 11, 2008, at B2 (reporting $400 billion in credit-default swaps made on Lehman Brother's debt after it filed for bankruptcy).
15. Edwards & Morrison, supra note 8, at 94, 101.
16. Linda Sandler, Lehman Liquidation Cost May Swell $200 Million as 480 Are Hired, BLOOMBERG.COM, Oct. 30, 2008, http://www.bloomberg.com/apps/news? pid=20601087&sid=aUWNysWfY Z1Y&refer=home.
17. Jeffrey McCracken, Lehman's Chaotic Bankruptcy Filing Destroyed Billions in Value, WALL ST. J., Dec. 29, 2008, at A10; see also Video: Harvey Miller Speaking at Columbia Law School's Sixth Annual Deals Roundtable (Columbia Law School 2008), http://www.law.columbia.edu/media-inquiries/news-events/2008/ November2008/deals-round (discussing huge losses resulting from bankruptcy laws' lack of protection for financial institutions and their clients).
18. E.g., McCracken, supra note 15 (reporting that Lehman Brother's internal analysts estimated as much as $75 billion of Lehman's value destroyed by chaotic bankruptcy filing). Also, the close-outs occurred in a market that was weakened as a result of Lehman's failure and had huge price swings in CDS for names like GMAC, AIG, Morgan Stanley, and Goldman Sachs. See, e.g., Morgan Stanley's CDS Lead Credit Spreads Wider, REUTERS, Oct. 10, 2008, http://www.reuters.com/article/rbssFinancialServicesAndRealEstate News/idUSN1036473720081010 (reporting that credit markets weakened in anticipation of credit-default swaps on Lehman's debt, affecting firms such as Morgan Stanley).
19. See Edwards & Morrison, supra note 8, at 99-106 (recounting circumstances surrounding rushed liquidation of LTCM).
20. Id. at 100.
21. See, e.g., Carrick Mollenkamp et al., Lehman's Demise Triggered Cash Crunch Around Globe; Decision to Let Firm Fail Marked a Turning Point in Crisis, WALL ST. J., Sept. 29, 2008, at A1 (reporting that Lehman Brother's collapse sent credit markets into disarray).
22. See, e.g., Ben S. Bernanke, Chairman, Fed. Reserve Sys., Speech at the Greater Austin Chamber of Commerce: Federal Reserve Policies in the Financial Crisis (Dec. 1, 2008), http://www.federalreserve.gov/newsevents/speech/ bernanke20081201a.htm (discussing Federal Reserve strategy for dealing with financial crisis, including policy for helping failing institutions);
23. Michael D. Bordo, An Historical Perspective on the Crisis of 2007-2008, at 3-4 (Nat'l Bureau of Econ. Research, Working Paper No. 14569, 2008), available at http://www.nber.org/papers/w14569.pdf (discussing Federal Reserve's decisions to bail out Bear Stearns and allow Lehman Brothers to fail).
24. David Small & James Clouse, The Limits the Federal Reserve Act Places on the Monetary Policy Actions of the Federal Reserve, 19 ANN. REV. BANKING L. 553, 560-65 (2000).
25. See, e.g., Confirmation of Mr. Timothy F. Geithner to Be Secretary of the U.S. Department of Treasury, 111th Cong. 82-83 (2009) (statement of Timothy Geithner, Treasury Secretary Nominee, answering questions from Sen. Snowe) (explaining government's attempt to avoid Lehman's default once it was evident that firm could not fund itself); Joe Nocera & Edmund L. Andrews, Running a Step Behind as a Crisis Raged, N.Y. TIMES, Oct. 23, 2008, at A1 (reporting that Federal Reserve could not bail out Lehman because it did not have enough assets to serve as collateral); Bernanke, supra note 20 (arguing that Lehman's failure was unavoidable, given firm's lack of collateral and legal restraints upon Federal Reserve).
26. See, e.g., Editorial, Questions for Mr. Geithner, N.Y. TIMES, Dec. 15, 2008, at A34 (arguing that Federal Reserve had insufficient information when deciding to let Lehman fail).
27. See generally FINANCIAL REGULATORY REFORM, supra note 1 (outlining Obama administration's proposed reforms, including legislation aimed at failing non-bank financial institutions).
28. See supra note 6 for sources explaining Republican position on regulatory reform.
29. FINANCIAL REGULATORY REFORM, supra note 1, at 76-79.
30. A similar right of intervention is possessed by the Securities Investor Protection Corporation (SIPC) in stockbroker liquidations under Chapter 7. See generally 11 U.S.C. §; 742 (2006);
31. Daniel J. Morse, When a Securities Brokerage Firm Goes Broke: A Primer on the Securities Investment Protection Act of 1970, 25 AM. BANKR. INST. J. 34 (2006).
32. See, e.g., FINANCIAL REGULATORY REFORM, supra note 1, at 37-38 (proposing that hedge funds be required to register with SEC and Commodity Futures Trading Commission).
33. Along these lines, the Treasury has proposed three factors that may help identify systemically important institutions: o the impact the firm's failure would have on the financial system and the economy; o the firm's combination of size, leverage (including off-balance sheet exposures), and degree of reliance on short-term funding; and o the firm's criticality as a source of credit for households, businesses, and state and local governments and as a source of liquidity for the financial system. Id.
34. MARKUS BRUNNERMEIER ET AL., THE FUNDAMENTAL PRINCIPLES OF FINANCIAL REGULATION 25-26 (Int'l Ctr. for Monetary & Banking Studies 2009).
35. See Perspectives on Regulation of Systemic Risk in the Financial Services Industry: Hearing Before the H. Comm. on Financial Servs., 111th Cong. app. at 163-67 (2009) (testimony of Peter J. Wallison, Arthur F. Burns Fellow in Financial Policy Studies, American Enterprise Institute), for a discussion on the costs of centralized decision making.
36. Intervention is necessary, for example, when a bank is "critically undercapitalized, " defined as equity capital representing two percent or less of total assets. 12 U.S.C. §; 1831o(b)(1)(E), (c)(3) (2006). If an institution becomes critically undercapitalized, the FDIC is required to restrict its activities in statutorily prescribed ways. Id. §; 1831o(i). The FDIC may appoint a receiver at any time within 90 days. Id. §; 1831o(h). This rule prevents federal regulators from gambling on bank resurrection.
37. Id. §; 1821(c)(5).
38. Id. §; 191(a). See generally JONATHAN R. MACEY ET AL., BANKING LAW AND REGULATION ch. 10 (3d ed. 2001) (discussing FDIC's broad authority once it intervenes to rescue failing or threatened bank).
39. James Madison Ltd. v. Ludwig, 82 F.3d 1085, 1092-93 (D.C. Cir. 1996). Judicial review is available for the decision to impose a receivership or conservatorship, but not for subsequent decisions by the federal agency. Id.
40. 12 U.S.C. §; 1823(c)(4).
41. Id. §;§; 1821(d)(2)(G), 1823(c)(2)(A)(iii).
42. For a useful, oft-quoted, but somewhat outdated summary of the process, see Gunter v. Hutcheson, 674 F.2d 862, 865-66 (11th Cir. 1982).
43. 12 U.S.C. §; 1823(c)(2), (c)(4); see also FED. DEPOSIT INS. CORP., RESOLUTIONS HANDBOOK 29-35 (2003), available at http://www.fdic.gov/bank/ historical/reshandbook/(describing FDIC's use of loss purchase and assumption transactions to transfer assets of failed banks to solvent banks).
44. FED. DEPOSIT INS. CORP., supra note 39, at 29.
45. See FED. DEPOSIT INS. CORP., supra note 39, at 20-21, for a summary of these critiques.
46. See generally FED. DEPOSIT INS. CORP. & JPMORGAN CHASE BANK, PURCHASE AND ASSUMPTION AGREEMENT: WHOLE BANK (2008), available at http://www.fdic.gov/ about/freedom/Washington-Mutual-P-and-A.pdf; Robin Sidel et al., J.P. Morgan Buys Bear in Fire Sale, as Fed Widens Credit to Avert Crisis, WALL ST. J., Mar. 17, 2008, at A1; Robin Sidel et al., WaMu Is Seized, Sold Off to J.P. Morgan, in Largest Failure in U.S. Banking History, WALL ST. J., Sept. 26, 2008, at A1; Andrew Ross Sorkin & Landon Thomas Jr., JPMorgan Acts to Buy Ailing Bear Stearns at Huge Discount, N.Y. TIMES, Mar. 16, 2008, at A1.
47. 12 U.S.C. §; 1821(m), (n). See generally FED. DEPOSIT INS. CORP., supra note 39, at 35-40.
48. 12 U.S.C. §; 1821(d)(2)(F), (m). If an initial public offering ( "IPO ") of the bank's stock fails, the FDIC must arrange a purchase and assumption transaction or liquidate the new bank within two to five years of its origination. Id. §; 1821(m)(17). New banks must be wound up within two years, but the FDIC has discretion to extend the life of a bridge bank for three additional one-year periods. Id. §; 1821(n)(9).
49. Id. §; 1821(c)(5); FED. DEPOSIT INS. CORP., supra note 39, at 37.
50. 12 U.S.C. §; 1821(d)(2)(G)(i)(II), (i)(2).
51. Press Release, Fed. Deposit Ins. Corp., FDIC Creates Bridge Bank to Take Over Operations of Silverton Bank, National Association, Atlanta, Georgia (May 1, 2009), available at http://www.fdic.gov/news/news/press/2009/pr09061.html.
52. See generally FED. DEPOSIT INS. CORP., supra note 39, at 41-46.
53. Id. at 41.
54. The "disorderly failure " of Lehman was, in part, the motivation for President Obama's proposal for "the creation of a resolution regime to allow for the orderly resolution of failing " institutions "in situations where the stability of the financial system is at risk. " FINANCIAL REGULATORY REFORM, supra note 1, at 76; see also Regulating and Resolving Institutions Considered "Too Big to Fail, " supra note 4 (advocating new regulatory approach for important financial institutions). See generally Nouriel Roubini, Op-Ed., We Need a New Insolvency Regime for Banks, FORBES.COM, Mar. 26, 2009, http://www.forbes.com/2009/03/25/banks- nationalization-fdic-bankruptcy-opinions-columnistsinsolvency- roubini.html.
55. 12 U.S.C. §; 1821(d)(2)(D).
56. FED. DEPOSIT INS. CORP., supra note 39, at 69 n.2 ( "[T]he FDIC has never been appointed conservator by the OCC or a state regulatory authority and may decline the appointment if tendered; the FDIC was appointed conservator once by the Office of Thrift Supervision [in the case of IndyMac]. ").
57. See generally Damian Paletta et al., IndyMac Reopens, Halts Foreclosures on Its Loans, WALL ST. J., July 15, 2008, at C1; Federal Deposit Insurance Corporation, Failed Bank Information: Information for IndyMac Bank, F.S.B., and IndyMac Federal Bank, F.S.B., Pasadena, CA, http://www.fdic.gov/bank/indivi dual/failed/IndyMac.html (last visited Nov. 19, 2009).
58. MARK JICKLING, CRS REPORT FOR CONGRESS: FANNIE MAE AND FREDDIE MAC IN CONSERVATORSHIP 2-4 (2008), available at http://fpc.state.gov/documents/ organization/110097.pdf.
59. Housing and Economic Recovery Act of 2008, Pub. L. No. 110-289, 122 Stat. 2654 (codified as amended in scattered sections of 12 U.S.C.).
60. 12 U.S.C. §; 4511.
61. Id. §; 4617.
62. See Press Release, Henry M. Paulson, Jr., Sec'y of the Treasury, Statement on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers (Sept. 7, 2008), available at http://www.treas.gov/press/releases/hp1129.htm (announcing and detailing reasons for FHFA's conservatorship of Fannie Mae and Freddie Mac).
63. JICKLING, supra note 54, at 3.
64. 12 U.S.C. §; 4617; see also Federal Housing Finance Agency, Fact Sheet: Questions and Answers on Conservatorship, http://www.treas.gov/press/ releases/reports/fhfa-consrv-faq-090708hp1128.pdf (last visited Nov. 19, 2009).
65. 12 U.S.C. §; 1823(c)(8).
66. FED. DEPOSIT INS. CORP., supra note 39, at 47.
67. Matthew Karnitschnig et al., U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up, WALL ST. J., Sept. 17, 2008, at A1.
68. See 12 U.S.C. §; 1823(c)(4) (providing that FDIC may exercise authority only at least possible cost to federal deposit insurance funds, and prescribing methods of determining least costly approach).
69. See generally MACEY ET AL., supra note 34, at 70-73.
70. See 12 U.S.C. §; 1818(a)(8)(A) (empowering FDIC to suspend deposit insurance for institutions without tangible capital).
71. See id. §; 84(a) (prescribing formulas to tie lending limits to collateral).
72. See id. §; 24 (restricting equity investments in corporations).
73. See id. §; 161 (requiring institutions to provide reports to Comptroller of Currency regarding condition of institution and payment of dividends).
74. See id. §; 1820(d) (mandating annual on-site examinations for all insured institutions).
75. See generally MACEY ET AL., supra note 34, at 725-26 (discussing process of appointing fiduciary to manage bank's affairs).
76. 12 U.S.C. §;§; 4511-4519; see also Federal Housing Finance Agency, About FHFA, http://www.fhfa.gov/Default.aspx?Page=4 (last visited Oct. 21, 2009) (outlining FHFA's functioning). See supra text accompanying notes 54-60 for a discussion of the FHFA's establishment and operation.
77. See STUART I. GREENBAUM & ANJAN V. THAKOR, CONTEMPORARY FINANCIAL INTERMEDIATION 443 (2d ed. 2007) (positing that public regulation is necessary to reduce moral hazard).
78. See id. (noting that deposit insurance and other government safeguards intended to protect private banks ultimately move costs and risks from banks to public and disincentivize banks' selfregulation).
79. See id. at 445 (analogizing moral hazard problem in fire insurance policies to banking industry).
80. See supra notes 65-72 and accompanying text for a discussion of bank regulation requirements.
81. Inadequate information may have contributed to the current crisis. See RICHARD A. POSNER, A FAILURE OF CAPITALISM: THE CRISIS OF '08 AND THE DESCENT INTO DEPRESSION 145-46 (2009) (stating that housing bubble started to deflate in 2005, but government did not discover problem in banking industry until fall 2008).
82. See, e.g., Robert R. Bliss & George G. Kaufman, U.S. Corporate and Bank Insolvency Regimes: A Comparison and Evaluation, 2 VA. L. & BUS. REV. 143, 152 (2007) (noting that statutory minimum capital reserve requirements are designed in part to "reduce[] the discretion of bank regulators to decide when to appoint receivers ").
83. See POSNER, supra note 77, at 134-39 (discussing why warning signs were largely ignored and highlighting difficulty in pacifying public when attempting to prevent "unlikely " events from happening).
84. The response to the current financial crisis has been widely criticized for inconsistency. See Steve Matthews & Vivien Lou Chen, Hoenig Hits Treasury for Lack of 'Decisive' Action, BLOOMBERG.COM, Mar. 6, 2009, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRFsoblx5kBw (reporting senior Federal Reserve official's criticism of Treasury's "ad-hoc approach " to bank crisis).
85. See Tyler Cowen, Why Creditors Should Suffer, Too, N.Y. TIMES, Apr. 5, 2009, at BU1 (emphasizing that new proposals effectively protect creditors of big financial firms from "their own lending and trading mistakes ").
86. E.g., Francis X. Diebold & David A. Skeel, Jr., Geithner Is Overreaching on Regulatory Power, WALL ST. J., Mar. 27, 2009, at A11 (stating that FDIC did not assume control of IndyMac until after it had clearly failed).
87. 11 U.S.C. §; 362(a) (2006).
88. A firm can file a bankruptcy petition under Chapter 7 liquidation, id. §;§; 701-784, or Chapter 11 reorganization, id. §;§; 1101-1174. Liquidation can be accomplished under either chapter. See generally DOUGLAS G. BAIRD, THE ELEMENTS OF BANKRUPTCY ch. 1 (4th ed. 2006). Circuit City, for example, underwent liquidation in Chapter 11. See Miguel Bustillo, Retailer Circuit City to Liquidate- Consumer-Electronics Pioneer Closing; 34,000 Workers Will Lose Jobs, WALL ST. J., Jan. 17, 2009, at B1 (reporting that Circuit City liquidated after failing to reorganize under Chapter 11).
89. 11 U.S.C. §;§; 1101-1174.
90. Sales are often conducted in Chapter 11 using §; 363(b), which permits sales of assets outside the ordinary course. See Kenneth M. Ayotte & Edward R. Morrison, Creditor Control and Conflict in Chapter 11, 1 J. LEGAL ANALYSIS 511, 534-36 (2009), available at https://ojs.hup.harvard.edu/index.php/ jla/article/view/57/53 (documenting frequency of "363 sales " in large corporate bankruptcy cases); Douglas G. Baird & Robert K. Rasmussen, Chapter 11 at Twilight, 56 STAN. L. REV. 673, 691-93 (2003) (same). Chrysler and General Motors, for example, were recently sold as going concerns, with financing provided by the federal government. See generally Mark J. Roe & David Skeel, Assessing the Chrysler Bankruptcy, 108 MICH. L. REV. (forthcoming 2010), available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id=1426530; Edward R. Morrison, Chrysler, GM, and the Future of Chapter 11 (Columbia Law & Econ. Research Paper No. 365, 2009), available at http://papers.ssrn.com/ sol3/papers.cfm?abstract-id=1529734.
91. See Kenneth Ayotte & David A. Skeel, Jr., Bankruptcy or Bailouts?, 35 J. CORP. L. (forthcoming 2010), available at http://papers.ssrn.com/sol3/ papers.cfm?abstract-id=1362639 (discussing features of bankruptcy law intended to aid financial distress).
92. REPUBLICAN MEMBERS OF THE H. COMM. ON FIN. SERVS., supra note 6, at 3.
93. Id.
94. See 12 U.S.C. §; 1821(e)(8) (2006) (outlining parameters for certain financial contracts). See generally Robert R. Bliss & George G. Kaufman, A Comparison of U.S. Corporate and Bank Insolvency Resolution, ECON. PERSP., 2d Q. 2006, at 44.
95. 11 U.S.C. §; 303(b) (2006).
96. See Carrick Mollenkamp et al., Lehman Files for Bankruptcy, Merrill Sold, AIG Seeks Cash, WALL ST. J., Sept. 16, 2008, available at http://online.wsj. com/article/SB122145492097035549.html (describing negative impact of Lehman's bankruptcy filing on stock market).
97. See supra Section III.A.2 for an analysis of the rescue procedures and strategies available to the FDIC.
98. See, e.g., 11 U.S.C. §; 1109(b) ( "A party in interest &mellip; may raise and may appear and be heard on any issue in a case under this chapter. "); FED. R. BANKR. P. 6004 (as amended by U.S. ORDER 09-16, Mar. 26, 2009) (requiring notice and hearing before courts approve motions to sell assets); S. Motor Co. v. Carter-Pritchett-Hodges, Inc. (In re MMH Auto. Group), 385 B.R. 347, 372 (Bankr. S.D. Fla. 2008) (stating that procedural expediency does not trump due process). See generally Eric S. Richards, Due Process Limitations on the Modification of Liens Through Bankruptcy Reorganization, 71 AM. BANKR. L.J. 43, 44-51 (1997).
99. Lehman Brothers Holdings, Inc., the parent company, filed its Chapter 11 petition on September 15, 2008. Bankruptcy Judge Peck approved the sale of Lehman Brothers Inc., a subsidiary, to Barclays on September 19, 2008. Order Under 11 U.S.C. §;§; 105(a), 363, and 365 and Federal Rules of Bankruptcy Procedure 2002, 6004 and 6006 Authorizing and Approving (A) the Sale of Purchased Assets Free and Clear of Liens and Other Interests and (B) Assumption and Assignment of Executory Contracts and Unexpired Leases, Docket No. 258, In re Lehman Brothers Holdings, Inc., No. 08-13555, 2008 WL 4385989 (Bankr. S.D.N.Y. Sept. 19, 2008).
100. A third problem is the international scope of most, if not all, major financial institutions. Any rescue will require extensive coordination with foreign governments, something bankruptcy courts are not well equipped to handle.
101. See, e.g., Gen. Motors Corp., Current Report (Form 8-K), at 2 (May 28, 2009), available at http://www.sec.gov/Archives/edgar/data/40730/ 000119312509119940/d8k.htm (describing §; 363 sale proposal); Roe & Skeel, supra note 86, at 12-18 (describing and criticizing §; 363 sale of Chrysler); Press Release, U.S. Dep't of the Treasury, Obama Administration Auto Restructuring Initiative Chrysler- Fiat Alliance (Apr. 30, 2009), http://www.treas.gov/press/releases/tg115.htm (delineating Obama administration's role in Chrysler's restructuring)
102. Almost nothing stops the government from acting to protect markets. Recall that, according to various government officials, the Fed was powerless to stop Lehman's failure, due to statutory constraints on its lending abilities. See supra notes 20-23 and accompanying text. If true, this suggests that we might want to expand the Fed's lending powers to include unsecured loans. With greater power, the Fed would be better poised to prevent a costly bankruptcy filing.
103. The current regime also imposes discipline on financial institutions, which cannot expect conservatorships or bailouts in the event of distress. They instead face, as Lehman did, the prospect of rapid liquidation in Chapter 11. This prospect induces troubled institutions (pressured by creditors) to contact federal regulators and share information before a meltdown.
104. See DEP'T OF THE TREASURY, TITLE II-CONSOLIDATED SUPERVISION AND REGULATION OF LARGE, INTERCONNECTED FINANCIAL FIRMS 2-3 (proposed 2009), available at http://www.financialstability.gov/docs/regulatoryreform/07222009/ titleII.pdf [hereinafter TITLE II] (defining "financial company " in various contexts).
105. Id. at 3; see also DIVISION D, supra note 1, at 4-6 (proposing procedure for determining whether financial institution is systemic risk).
106. FINANCIAL REGULATORY REFORM, supra note 1, at 20.
107. Id. at 76.
108. See TITLE II, supra note 100, at 32 (describing obligatory bankruptcy for "critically undercapitalized Tier 1 financial holding companies ")..
109. This issue is discussed in Systemic Regulation, Prudential Matters, Resolution Authority and Securitization: Hearing Before the H. Comm. on Financial Servs., 111th Cong. 9-22 (2009) (statement of T. Timothy Ryan, Jr., President and CEO of the Securities Industry and Financial Markets Association), http://www.house.gov/apps/list/hearing/financialsvcs-dem/ryan-sifma.pdf.