Making Failure Feasible

Making Failure Feasible

How Bankruptcy Reform Can End Too Big to Fail

Editors: Thomas H. Jackson, Kenneth E. Scott, John B. Taylor
ISBN: 978-0-8179-1884-2
Publication Date: 10/1/2015

In 2012, building off work first published in 2010, the Resolution Project proposed that a new Chapter 14 be added to the Bankruptcy Code, exclusively designed to deal with the reorganization or liquidation of the nation’s large financial institutions. In Making Failure Feasible, the contributors expand on their proposal to improve the prospect that our largest financial institutions—particularly with prebankruptcy planning—could be successfully reorganized or liquidated pursuant to the rule of law and, in doing so, both make resolution planning pursuant to Title I of Dodd-Frank more fruitful and make reliance on administrative proceedings pursuant to Title II of Dodd-Frank largely unnecessary.

This book highlights the problems of dealing with large financial institutions in distress, without incurring either spillover distress to other institutions or relying on government bailout, and Chapter 14’s responses to those twin issues, as well as recommending other measures that would facilitate successful resolutions. The contributors first outline the basic features of Chapter 14 as originally proposed in 2012 vis-à-vis the reorganization or liquidation of an operating company and point to their continuation as well as additional features to ensure the quick resolution of large financial institutions that would not depend on government discretion and would mesh with emerging ideas about cross-border resolution.

The remaining chapters provide the context for reform, outline the fundamental principles of reform, show how reform would work in practice, and show how Chapter 14, as envisioned in this book, would be a substantial advance on administrative-focused resolution procedures.


Thomas H. Jackson is a distinguished university professor and president emeritus from the University of Rochester. Formerly a professor at Stanford and Harvard Law Schools and dean at the University of Virginia School of Law, he is currently a member of the Resolution Project at the Hoover Institution’s Working Group on Economic Policy.

Kenneth E. Scott, a Hoover Institution senior research fellow and the Ralph M. Parsons Professor Emeritus of Law and Business at Stanford Law School, chairs the Resolution Project at the Hoover Working Group on Economic Policy and is a leading scholar in the fields of corporate finance reform and corporate governance who has written extensively on federal banking regulation.

John B. Taylor is the George P. Shultz Senior Fellow in Economics at the Hoover Institution, chairs the Hoover Working Group on Economic Policy, and is the Mary and Robert Raymond Professor of Economics at Stanford University.

CONTRIBUTORS: Jacopo Carmassi, Darrell Duffie, Simon Gleeson, Richard J. Herring, Thomas F. Huertas, Thomas H. Jackson, Emily C. Kapur, William F. Kroener III, Kenneth E. Scott, David Skeel, John B. Taylor


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John B. Taylor

John B. Taylor is the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution and the Mary and Robert Raymond Professor of Economics at Stanford University. He has served as the director of the Stanford Institute for Economic Policy Research and was founding director of Stanford's Introductory Economics Center.

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Kenneth E. Scott

Kenneth E. Scott is a senior research fellow and the Ralph M. Parsons Professor of Law and Business Emeritus, Stanford University Law School. He is an expert in public regulation of banking institutions, corporation law, and securities law. His current research focuses on legislative and policy developments related to bank regulation and deposit insurance reform. He is also exploring the application of new economic perspectives to corporate law and governance issues.

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Thomas H. Jackson

Thomas H. Jackson is a distinguished university professor and president emeritus from the University of Rochester. Formerly a professor at Stanford and Harvard Law Schools and dean at the University of Virginia School of Law, he is currently a member of the Resolution Project at the Hoover Institution's Working Group on Economic Policy.




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Contents

Lists of Figures and Tables     ix

Preface     xi
John B. Taylor

1     The Context for Bankruptcy Resolutions     1
      Kenneth E. Scott
2     Building on Bankruptcy: A Revised Chapter 14 Proposal for the Recapitalization, Reorganization, or Liquidation of Large Financial Institutions     15
      Thomas H. Jackson
3     Financing Systemically Important Financial Institutions in Bankruptcy     59
      David A. Skeel Jr.
4     Resolution of Failing Central Counterparties     87
      Darrell Duffie
5     The Consequences of Chapter 14 for International Recognition of US Bank Resolution Action     111
      Simon Gleeson
6     A Resolvable Bank     129
       Thomas F. Huertas
7     The Next Lehman Bankruptcy     175
      Emily Kapur
8     Revised Chapter 13 2.0 and Living Will Requirements under the Dodd-Frank Act     243
      William F. Kroener III
9     The Cross-Border Challenge in Resolving Global Systemically Important Banks     249
      Jacopo Carmassi and Richard Herring

About the Contributors     277
About the Hoover Institution's Work Group on Economic Policy     283
Index     285



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