The House of Representatives today is scheduled to vote on a bankruptcy plan for big banks that deserves more attention from taxpayers, according to an editorial in today’s Wall Street Journal. The Financial Institution Bankruptcy Act enjoys broad bipartisan support and has received little public examination. The bill will be considered today under suspension of the rules, meaning it cannot be amended and will be subject to limited debate, though to pass the House it will need to attract a two-thirds vote. Co-sponsored by Reps. Spencer Bachus (R- Ala.), John Conyers (D-Mich.), and Bob Goodlatte (R-Va.), the bill creates a new section of the Bankruptcy Code for big financial firms. Bankruptcy courts, according to the editorial, would be better for resolving failing giants than the “orderly liquidation authority” created by the 2010 Dodd-Frank law that allows regulators to rescue these institutions and then discriminate among their creditors. However, nothing in the bill repeals the rescue authorities given to regulators under Dodd-Frank and there’s no ban on taxpayer assistance to the failing giants put through the new bankruptcy process. If the idea is to take power from bureaucrats and give it back to markets and judges, according to the editorial, it’s odd that not only the failing firm but also the Federal Reserve Board of Governors can trigger the bankruptcy filing if “necessary to prevent serious adverse effects on financial stability in the United States.” The affected company can contest the Fed’s decision privately before the court.
