Will banks see bankruptcy reform applicable to them?

On behalf of Macdonald Fernandez LLP posted in business and commercial bankruptcy on Thursday, February 25, 2016.

We have all heard the moniker "too big to fail" when it comes to America's largest financial institutions. Indeed, the precautions now in place can prevent the economy from collapsing if one of the financial behemoths becomes insolvent, even if only on a temporary basis. But smaller banks can still fall prey to the throes of a down economy. In these instances, investors and customers alike must be protected.

Because of this, Congress is considering a new bill that could streamline the bankruptcy process for troubled banks. According to recent media reports, the House Judiciary Committee has approved a new bill that could be heard in the near future that could change the way financial institutions go through the process.

The Financial Institution Bankruptcy Act (FIBA) would incorporate many features that regulators and bankruptcy experts have been calling for since the bill was first introduced, including quick asset transfer procedures, expedited judicial review of special bankruptcy cases, and regulatory input as the law evolves and unique situations present themselves.

While the bill appears to be moving along, there inevitably be amendments suggested. One such amendment has already been approved by the judiciary committee, which removes the federal reserve's ability to initiate involuntary bankruptcies for troubled banks. This was a highly contentious issue given that the Dodd-Frank Act currently gives the FDIC the right to resolve issues involving such banks.

It remains to be seen whether (or when) the bill will be heard by Congress in full. In the meantime, the story should serve as another reason why the guidance and advice of experienced bankruptcy counsel can benefit any troubled business...even banks.