Stephen Cecchetti, Kim Schoenholtz, 29 May 2017

In April 2017, the US House of Representatives passed a bipartisan revision of the bankruptcy code, which would expedite the resolution of adequately structured intermediaries. This column considers the new Financial Institutions Bankruptcy Act of 2017 and how it fits in with the existing Dodd-Frank mechanism. By raising the odds of an effective resolution, the Act (as a complement to Dodd-Frank) boosts the credibility of the US regime. However, in the absence of an Orderly Liquidation Fund-like provision for temporary government funding, investors and foreign regulators will expect a future US government to re-introduce an ad hoc bailout mechanism when it is inevitably needed.

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