Bankruptcy protections tailored to large financial institutions in crisis are back on the agenda in Congress, but using chapter 11 in these situations has its drawbacks, some scholars and practitioners say, Bankruptcy Law Reporter reported on Wednesday. Bipartisan legislation passed by the House and now wrapped into a larger appropriations measure may improve its chances in the Senate if it should get there. It would enable mega banks to restructure in bankruptcy should they run aground. It would create a new sub-chapter in Chapter 11 for financial institutions with assets of at least $50 billion, which would include institutions such as JPMorgan Chase, Bank of America, Wells Fargo & Co., and Citigroup Inc. Proponents say the Financial Institution Bankruptcy Act (FIBA) of 2017 (H.R. 1667) would help ensure financial market stability in the event of a major bank failure. That occurred in 2008 amid the global financial crisis when Lehman Brothers went bankrupt. There’s some optimism in the House that the plan will make it to the other side of the Capitol as early as this summer, where a similar bill died in 2016. But there is disagreement among bankruptcy scholars and practitioners as to whether bankruptcy, by itself, can address systemic risk concerns.
