H.R. 5421, Financial Institution Bankruptcy Act of 2014, as amended

H.R. 5421

Financial Institution Bankruptcy Act of 2014, as amended

Committee
Judiciary

Date
December 1, 2014 (113th Congress, 2nd Session)

Staff Contact
Communications

Floor Situation

On Monday, December 1, 2014, the House will consider H.R. 5421, the Financial Institution Bankruptcy Act of 2014, as amended, under suspension of the rules.  H.R. 5421 was introduced by Rep. Spencer Bachus (R-AL) on September 9, 2014 and was referred to the House Judiciary Committee.  The bill was marked up on September 10, 2014 and was ordered reported by voice vote.

Bill Summary

H.R. 5421 adds a new subchapter to Chapter 11 of the Bankruptcy Code to provide for addressing the bankruptcy of financial institutions through the bankruptcy process.  The bill authorizes a covered financial institution to voluntarily commence a bankruptcy proceeding and also authorizes, in certain circumstances, the involuntary commencement of such proceeding by the Federal Reserve.  In such instances the Federal Reserve must show, and a judge must agree, that the financial institution is at, or near, insolvency and that the bankruptcy case must be commenced to prevent imminent substantial harm to financial stability in the U.S.

Background

The following is based on information provided by the House Judiciary Committee: The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) created a process for resolving certain “systematically important financial institutions.”  However, Dodd-Frank required the process to be used only as a last resort, following a determination that the financial institution could not be resolved through traditional bankruptcy proceedings without endangering the broader financial system.  As such, Dodd-Frank required the Federal Reserve and the Government Accountability Office to analyze the ability of the Bankruptcy Code to resolve financial institutions.  The reports, which were published in July 2011, and subsequent examination by industry and regulatory participants yielded recommendations for improving the Bankruptcy Code to resolve financial institutions.  H.R. 5421 addresses this issue by adding a subchapter to Chapter 11 of the Bankruptcy Code, which is currently used to restructure large, complex companies.  The subchapter added by H.R. 5421 directly addresses financial institutions organized as bank holding companies.  The new subchapter generally provides for use of the “singly point of entry” approach, which allows the top-level holding company (which does not undertake operations for the financial institution) to be placed in bankruptcy, while leaving the company’s subsidiaries—the financial institutions—outside the process.  Subject to a judge’s approval, equity in the subsidiaries is transferred to a newly-formed “bridge” company and held in trust for the benefit of bankruptcy creditors.

Cost

According to CBO estimates, implementing H.R. 5421 would not significantly impact the federal budget.

Additional Information

For questions or further information contact the GOP Conference at 5-5107.