Respondents were divided in a recent ABI Quick Poll over whether a new Chapter 14 should be created in the U.S. Bankruptcy Code for restructuring too-big-to-fail financial institutions.

Fifty percent of respondents (24 percent “strongly” and 26 percent “somewhat”) thought that a new chapter 14 should be created for TBTF financial institutions, while 42 percent did not (33 percent “strongly” and 9 percent “somewhat”). Eight percent did not know/had no opinion on the poll.

Seeking to avoid a meltdown similar to the 2008 financial crisis, Congress enacted Title II of the Dodd-Frank Act in 2010 to institute an Orderly Liquidation Authority that would provide a process for quickly and efficiently liquidating a large, complex financial company that is close to failing. Title II avoids the bankruptcy system, so if a TBTF institution fails, the Federal Deposit Insurance Corp. would be appointed as receiver to carry out the liquidation and wind-down of the company. Recently proposed legislation (S. 1861) would repeal Title II and replace it with chapter 14 of the Bankruptcy Code, which would then be used for the reorganization of large complex financial companies. The bill would explicitly ban government bailouts in the form of a credit support facility.

Meanwhile, the House Judiciary Committee will hold a hearing on an alternative, the “Financial Institution Bankruptcy Act of 2014” on July 15. The bill would permit bank regulators to put the institution’s holding company and its equity and bond debt into resolution, while transferring its assets to a new bridge company that can be restructured.

ABI’s Legislation Committee will be hosting a 1 p.m. ET webinar on July 15 to examine current proposals. The discussion will explore the policies underlying chapter 14 and concerns surrounding the limits of chapter 11, as well as the potential effects that this proposed legislation would have on large financial institutions and bankruptcy practitioners.