Backstop, not Bailout: The Case for Preserving the Orderly Liquidation Authority under Dodd-Frank

Authors

Mark R. Maciuch

Abstract

The Trump Administration and Republicans have initiated efforts to repeal certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), one of which is the Orderly Liquidation Authority (OLA) under Title II of Dodd-Frank. Critics of the OLA argue that it enables, rather than prevents, future bailouts funded by taxpayers. These critics are concerned with the Federal Deposit Insurance Corporation’s (FDIC) discretion to decide when and how to resolve distressed financial firms, as well as the FDIC’s access to large amounts of funds from the U.S. Department of the Treasury to carry out these functions. Proponents of the Financial CHOICE Act prefer that instead of a governmental regulatory body, failing firms be resolved exclusively through the bankruptcy court system, which they believe provides a fair and dependable process that protects U.S. consumers by not using taxpayer-funded bailouts. However, this Note will argue that while the bankruptcy process should be improved upon, the OLA must be preserved to serve as a fallback and last resort when other resolution regimes fail. The OLA is led by professional financial experts deeply integrated into the financial industry who can act quickly and effectively to wind-up failing firms in the safest manner possible and prevent economic collapse. The OLA also provides access to critical liquidity necessary for resolving failing firms in short time frames. A bankruptcy alternative simply cannot provide such remedies in times of high financial stress because the typical sources of liquidity in a bankruptcy process, such as creditors and other investors from the private sector, will also be affected during a crisis and limited in their ability to provide liquidity to a large failing firm. While improvements can be made to the OLA, it should not be repealed in its entirety. The OLA is necessary to protect the economy and prevent the need for another bailout.

Recommended Citation

Mark R. Maciuch, Backstop, not Bailout: The Case for Preserving the Orderly Liquidation Authority under Dodd-Frank, 13 Brook. J. Corp. Fin. & Com. L. (2018).
Available at: https://brooklynworks.brooklaw.edu/bjcfcl/vol13/iss1/12