Using Bankruptcy and Capital Standards to Address Financial Institutions That Are “Too Big to Fail”
The next financial crisis could cause the entire global financial system to collapse. However, the Obama Administration’s proposal is unrealistic and would give government regulators almost unlimited powers to take over or micromanage financial institutions. The better choice would be to amend U.S. bankruptcy law to create an open, expedited bankruptcy process in which an impartial court would oversee the restructuring or closure of large and complex financial firms. In addition, increasing financial institutions’ capital requirements would reduce risk to the system and limit losses if a financial crisis occurs.