Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said that the Bankruptcy Code should be changed to accommodate the failure of a large financial firm, which he said was preferable to the federal government rescue of a cratering bank, the Wall Street Journal reported today. Lacker, in testimony at a House Judiciary Committee hearing yesterday, said that improving the Code would strengthen the financial system by reducing the chance of a government rescue and, in turn, imposing more discipline on financial firms and their creditors. Ensuring large financial firms have a credible bankruptcy path, and minimizing the chance of government support, could also help reduce reliance on potentially volatile short-term funding since creditors and firms would be less willing to take such risk, Lacker said. (Subscription required.)
http://online.wsj.com/news/articles/SB100014240527023043551045792360501…
To read the prepared hearing testimony, please click here.