House Passes Bankruptcy Alternative for Big Banks

WASHINGTON — The House passed a bill Tuesday that would create a new bankruptcy system for large financial institutions.

The Financial Institution Bankruptcy Act of 2016 was re-introduced this Congress and would amend the bankruptcy law for bank holding companies and large financial companies with more than $50 billion in financial assets.

"The potential failure of a financial institution is a burden that cannot be placed on the American people," Reps. Dave Trott, R-Mich., and co-sponsors Bob GoodLatte, R-Va., and Tom Marino, R-Pa., said in a statement referencing the resolution authority currently held by the Federal Deposit Insurance Corp.

Lawmakers said the bill will "ensure shareholders and creditors of a financial institution, not taxpayers, bear the risk and the losses associated with the failure of a financial institution" and "establishes a transparent, predictable process, overseen by an experienced bankruptcy judge, to handle the failure of financial institutions."

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, said that the legislation is a key component to a bill that he hopes to pass out of committee on Wednesday which would repeal Title II of the Dodd-Frank Act. Title II currently serves an alternative to bankruptcy and appoints the FDIC as receiver if a large financial institution becomes insolvent.

"Instead of ending 'too big to fail' and taxpayer-funded Wall Street bailouts, the Dodd-Frank Act enshrines them into law," Hensarling said, noting that the FDIC would be responsible for facilitating a wind-down.

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