Sens. John Cornyn (R-Texas) and Pat Toomey (R-Pa.) introduced a bill that would repeal orderly liquidation authority under the Dodd-Frank Act and replace it with a bankruptcy process for unwinding a failing but systemically significant financial institution. The bill, which its sponsors say would address continuing too-big-to-fail problems, would create a new chapter of the bankruptcy code for large financial firms.
Under the new Chapter 14, a failed bank would be declared bankrupt, with owners and creditors treated according to the code. Chapter 14 would allow the failed bank’s assets and liabilities posing systemic risk to be transferred to a “bridge” company, which would allow the bank to continue meeting its obligations while the bankruptcy is completed.