Monday, April 25, 2011

Federal Reserve Launches Bankruptcy Studies

The Federal Reserve Board on Thursday announced that it is launching two studies examining whether the Bankruptcy Code needs revisions in order to better handle failures of big financial companies, the Deal Pipeline reported on Friday. The Fed is asking for comment on exactly what the studies should cover. While the Dodd-Frank Act established an alternative to the bankruptcy process to wind down systemically important financial firms to be led by the Federal Deposit Insurance Corp., Congress also ordered regulators to take a closer look at the bankruptcy process, as an option for winding troubled financial giants. One study will examine the adequacy of chapter 7 and chapter 11 for facilitating bankruptcies of systemically important financial companies. Another question in that study is whether the Bankruptcy Code should adopt a provision in the FDIC's orderly liquidation process to allow derivative contracts to remain open after a firm is put in receivership, lessening the possibility assets will be sold at fire sale prices.