Bridge to Nowhere: Gaps in Treasury G-Sib Bankruptcy Plan

Michael Nonaka is quoted in a Risk Magazine article regarding U.S. Treasury's proposed reform to the bankruptcy code known as Chapter 14, intended to be the first resort ahead of orderly liquidation authority (OLA). According to Nonaka, “You want there to be different tools in the toolkit in the event of a crisis. That doesn’t mean you have to use Title II, but having the ability to exercise it to resolve an institution that couldn’t go through the bankruptcy process without the severe risk of financial instability is helpful. That in and of itself is a stabilizing factor.” Chapter 14 will curb the need to use Title II, says Nonaka, thereby contributing to the Treasury’s objective of making bankruptcy the first resort for a failing G-Sib. In particular, the intention is for a bankruptcy court to administer the process in just 48 hours, compared with the months or years required at present.