Financial Scholars Oppose Eliminating “Orderly Liquidation Authority” As Crisis-Avoidance Restructuring Backstop
May 23rd, 2017
122 law professors and economists signed onto a letter to the Chairs and Ranking Members of the House Financial Services and Judiciary Committees and the Senate Banking and Judiciary Committees that analyzes why the "Orderly Liquidation Authority" (OLA) in Title II of the Dodd-Frank Act should not be eliminated in favor of sole reliance on an improved bankruptcy law. Profs. Jeffrey Gordon (Columbia) and Mark Roe (Harvard) were the co-drafters.
The scholars oppose the proposed OLA repeal for three reasons. First, the bankruptcy process could well not succeed and, hence, needs a regulatory backup. Second, the bankruptcy process itself cannot succeed without a regulatory apparatus that gets financial firms the right capital structure beforehand. Third, a widespread financial crisis that threatens the failure of multiple financial firms will need coordinated responses that courts cannot, but the financial regulators can, provide.