Lawmakers are weighing tweaks to the Bankruptcy Code to prepare the federal court system for the next big bank failure by allowing a quick sale without the financial-market freeze that occurred when Lehman Brothers Holdings Inc. filed for chapter 11 in 2008, the Wall Street Journal reported today. Several bankruptcy lawyers testified yesterday before a U.S. House subcommittee on regulatory reform about the recently reintroduced Financial Institution Bankruptcy Act, which would give bankruptcy judges the power to privately transfer a struggling bank’s assets to a new, more stable owner in less than 48 hours. For several lawmakers, there was a lingering concern about who will pay for the bank-transfer process. The wind-down of Lehman Brothers, for example, has cost more than $2 billion in fees to professionals. Experts on big bank failures have said that the U.S. government might be the only body willing to lend to a struggling bank, leading to the problem of bailouts. Bankruptcy lawyer Richard Levin of Jenner & Block LLP said that he supports the availability of government money to provide liquidity to the transferred bank assets, saying that financial markets are likely to run more smoothly knowing that such a funding mechanism exists. Levin testified alongside fellow restructuring lawyers Donald Bernstein of Davis, Polk & Wardwell and Stephen Hessler of Kirkland & Ellis. All three agreed that the bill could have helped saved Lehman Brothers from collapse, in addition to the other measures that passed after the financial crisis. Read more. (Subscription required.)
Click here to watch a replay of the hearing and to read the prepared witness testimony.
