Law Commons^™

Is The Bankruptcy Code An Adequate Mechanism For Resolving The Distress Of Systemically Important Institutions?, Edward R. Morrison

Faculty Scholarship

The President and members of Congress are considering proposals that would give the government broad authority to rescue financial institutions whose failure might threaten market stability. These systemically important institutions include bank and insurance holding companies, investment banks, and other "large, highly leveraged, and interconnected" entities that are not currently subject to federal resolution authority. Interest in these proposals stems from the credit crisis, particularly the bankruptcy of Lehman Brothers. That bankruptcy, according to some observers, caused massive destabilization in credit markets for two reasons. First, market participants were surprised that the government would permit a massive market player to …