Hearing of the House Judiciary Committee - Markup of H.R. 5421, the "Financial Institution Bankruptcy Act of 2014"

Hearing

Chairman Goodlatte: In 2008, our economy suffered one of the most significant financial crises in history. In the midst of the crisis and in response to a fear that some financial firms' failures could cause severe harm to the overall economy, the federal government provided extraordinary taxpayer-funded assistance in order to prevent certain financial firms' failures.

In the ensuing years, experts from the financial, regulatory, legal, and academic communities have examined how best to prevent another similar crisis from occurring and avert the use of taxpayer monies to bail out failing firms.

The Judiciary Committee has advanced the review of this issue with the aim of crafting a solution that will better equip our bankruptcy laws to resolve failing firms and help prevent a new financial crisis while also encouraging greater private counterparty diligence in order to reduce the likelihood that such a similar crisis will ever again occur.

During the course of two hearings this Congress, the Subcommittee on Regulatory Reform, Commercial and Antitrust Law received testimony that the Bankruptcy Code could be improved to better facilitate a resolution of a financial firm, and that an amendment to chapter 11 to provide for a specialized subchapter would be the most efficient approach to meeting that goal.

Following these hearings, the Committee worked in bi-partisan fashion to develop draft legislation that conformed with witnesses' and leading experts' recommendations. These efforts culminated in a discussion draft of the "Financial Institution Bankruptcy Act of 2014," which was the subject of a legislative hearing on July 15th. All four witnesses testified that, subject to a few technical modifications, the Financial Institution Bankruptcy Act should be enacted into law.

In connection with the July 15th hearing, the Committee circulated the draft legislation to a number of interested parties, including the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Administrative Office of the U.S. Courts, the National Conference of Bankruptcy Judges, the National Bankruptcy Conference, and the International Swaps and Derivatives Association.

The Committee, again, in a bi-partisan fashion, received, reviewed and incorporated certain comments submitted by these and other parties. As a result, the bill before us today is the product of a careful, deliberate and thorough process and is a reflection of a diverse range of views from a variety of interested parties.

The Financial Institution Bankruptcy Act makes several improvements to the Bankruptcy Code in order to enhance the prospect of an efficient resolution of a financial firm through the bankruptcy process. The bill allows for a speedy transfer of the operating assets of a financial firm over the course of a weekend. This quick transfer allows the financial firm to continue operating in the normal course, which preserves the value of the enterprise for the creditors of the bankruptcy without a significant impact on the firm's employees, suppliers and customers.

The bill also requires an expedited judicial review by judges designated in advance and selected by the Chief Justice for their experience, expertise, and willingness to preside over these complex cases. Furthermore, the legislation provides for key regulatory input throughout the process.

The Financial Institution Bankruptcy Act is a bi-partisan, balanced approach that increases transparency and predictability in the resolution of a financial firm. Furthermore, it ensures that shareholders and creditors bear the losses related to the failure of a financial company.

I am pleased that Ranking Member Conyers joined in introducing this important legislation and want to thank him and his staff for working hand in hand with my staff throughout the development of this bill. I also would like to thank Chairman Bachus of the Subcommittee on Regulatory Reform, Commercial and Antitrust law, who has chaired several hearings on this issue, is a long-standing advocate of the bankruptcy process, and is the lead sponsor of the Financial Institution Bankruptcy Act.

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