WASHINGTON–Congress heard testimony yesterday related to legislation that would among other things amend the bankruptcy code to deal with the failures of too-big-to-fail banks.
U.S. Senator John Cornyn (R-TX) has introduced the Taxpayer Protection and Responsible Resolution Act (TPRRA), with the Senate Judiciary Committee holding the hearing on bankruptcies of large banks 10 years after the collapse of Lehman Brothers, the fourth-largest U.S. investment bank, which filed the nation’s largest ever bankruptcy case in September 2008.
Among the three experts who testified at the hearing was Donald S. Bernstein, a partner with Davis, Polk and Wardwell, who was among those present at the Federal Reserve Bank of New York on the weekend Lehman Brothers failed. Bernstein said he is supportive of adding a new Chapter 14 to the federal Bankruptcy Code to facilitate the orderly resolution of distressed financial institutions.
“I strongly believe that, if the Bankruptcy Code were amended to add tools to facilitate the recapitalization of failing financial firms in this manner, the risk of disorderly liquidations, contagious panic and related market disruptions could be minimized, the value of distressed financial firms could be maximized for stakeholders, and the risk that taxpayers would have to bail out distressed financial firms would be greatly reduced,” Bernstein told the committee.
In conjunction with the hearing, NAFCU President Dan Berger issued a statement that “The ‘800-pound gorilla’ in the room today is that many American families and Main Street financial intuitions are still recovering from the bank-led 2008 financial crisis. (The) hearing is a reminder that in the event of an economic downturn, the problems posed by ‘too big to fail’ financial institutions have sizeable, real-life implications across the entire U.S. economy. That is why we believe Congress should consider a modernized Glass-Steagall Act to reduce the impact of 'too big to fail.'”
NAFCU recently released a white paper calling for members of Congress to discuss creating a modernized Glass-Steagall Act in order to protect consumers from banks that are “too big to fail.”