House Passes Bill to Create New Bankruptcy Process for Big Banks

WASHINGTON - The House approved a bill late Monday that would set up a framework for large failing banks to go through the bankruptcy process.

The Financial Institutional Bankruptcy Act of 2014 was approved by voice vote after passing out of the House Judiciary Committee in September. The bipartisan revision to bankruptcy laws would allow big financial institutions to voluntarily begin bankruptcy proceedings and clarify some of the provisions for how that process would play out.

The bill "removes potential obstacles to an efficient bankruptcy of a financial institution," said Reps. Spencer Bachus, R-Ala., Bob Goodlatte, R-Va., and John Conyers, D-Mich., who sponsored the measure, in a press release. "This legislation enhances the Bankruptcy Code and its ability to resolve financial firms for the benefit of stability in the U.S. and global economies and does so with minimal financial burdens or cost."

Still, some lawmakers warned that bankruptcy legislation must not undermine the provisions laid out in the Dodd-Frank Act for handling big banks in distress. For example, regulators must continue to work with banks to improve their resolution plans for bankruptcy, known as "living wills."

Rep. Maxine Waters, D-Calif., thanked the judiciary panel for "working across the aisle to make bankruptcy for financial institutions more predictable and less dangerous to the economy" in a statement Monday night. But she emphasized that the bill's passage in the House "does not mean that we should undo important improvements enacted as part of the Wall Street Reform Act."

She added: "Even an improved bankruptcy process can't protect our economy until banks have submitted credible living wills. Dodd-Frank also established the Orderly Liquidation Authority, to ensure regulators can protect the economy and U.S. financial system from unforeseen disaster."

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