The House of Representatives is pushing to enact a bankruptcy act for banks that has several concerning features that could make bailouts more likely, not less likely, according to a commentary by Profs. Mark J. Roe of Harvard Law School and David A. Skeel Jr. of the University of Pennsylvania in the New York Times DealBook blog. It has passed a bankruptcy-for-banks bill, sent it to the Senate, and now embedded it in its appropriations bill, meaning that if Congress is to pass an appropriations bill this year, it may also have to enact the bankruptcy-for-banks bill. In concept, the professors say that bankruptcy for banks makes sense, even if it offers the benefits of government bailouts that industrial companies rarely receive. After all, a bank failure can bring down the economy, while an industrial failure cannot. But if banks can be reorganized in bankruptcy, the possibility of a win-win result is in the cards. It should be possible to restructure a big bank to stop it from damaging the economy without having to bail it out. First and most problematic about the bill, Roe and Skeel said that only the bank and not the regulator can make the bankruptcy happen. If the regulators think that a bankruptcy is needed, but that a bailout or alternative resolution process is not needed, they cannot directly force a filing.
