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A Dialogue On The Costs And Benefits Of Automatic Stays For Derivatives And Repurchase Agreements, Darrell Duffie, David A. Skeel Jr.
A Dialogue On The Costs And Benefits Of Automatic Stays For Derivatives And Repurchase Agreements, Darrell Duffie, David A. Skeel Jr.
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For nearly two years, the two of us have had a running discussion of the costs and benefits of automatic stays in bankruptcy for qualified financial contracts (QFCs) such as derivatives and repurchase agreements, particularly those held by systemically important major dealer banks. Under current U.S. bankruptcy law, these contracts are exempted from the automatic stay. The advantages and disadvantages of this treatment have been a matter of significant debate for the past decade, particularly since the 2008 crisis.
After some background on AFCs and automatic stays, we provide our joint analysis of the costs and benefits of stays on …
Transaction Consistency And The New Finance In Bankruptcy, David A. Skeel Jr., Thomas Jackson
Transaction Consistency And The New Finance In Bankruptcy, David A. Skeel Jr., Thomas Jackson
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Prior to the enactment of the Dodd-Frank Act last summer, derivatives and repurchase agreements (“repos”) were largely unregulated outside of bankruptcy, and also were exempted from core bankruptcy provisions such as the automatic stay, which prevents creditors from seizing collateral or attempting to collect what they are owed. The Dodd-Frank Act now extensively regulates derivatives outside of bankruptcy, but it left their special treatment in bankruptcy completely untouched.
There is a gap in the debate over this special treatment. To date, neither scholars nor the derivatives industry have fully analyzed the key counterfactual: what would happen if derivatives and repos …