Bondholder Reorganization of Systemically Important Financial Institutions

Steven Gjerstad ()

Working Papers from Chapman University, Economic Science Institute

Abstract: Paper presented at conference on Systemic Risk and the Organization of the Financial System, Chapman University, May 13, 2017. This paper describes a resolution process for faltering financial firms that quickly allocates losses to bondholders and transfers ownership of the firm to them. This process overcomes the most serious flaws in resolution plans submitted by banks under Dodd-Frank Title I and in the FDIC receivership procedure in Dodd-Frank Title II by restoring the balance sheet of a failing financial institution and immediately replacing the management and board of directors who allowed its demise. In almost all bank failures, this process would eliminate the need for government involvement beyond court certification of the reorganization. The procedure overcomes the serious incentive distortions and inefficiencies that result from bailouts, and avoids the destruction of value and financial market turmoil that would result from the bankruptcies and liquidations that Dodd-Frank requires for distressed and failing banks.

Date: 2017
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.chapman.edu/research/institutes-and-ce ... rs/gjerstad-2017.pdf

Related works:
Journal Article: Bondholder reorganization of systemically important financial institutions (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:17-22

Access Statistics for this paper

More papers in Working Papers from Chapman University, Economic Science Institute Contact information at EDIRC.
Bibliographic data for series maintained by Megan Luetje ().