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A comparison of U.S. corporate and bank insolvency resolution

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  • Robert R. Bliss
  • George G. Kaufman

Abstract

In the U.S., the insolvency resolution of most corporations is governed by the federal bankruptcy code and is administered by special bankruptcy courts. Most large corporate bankruptcies are resolved under Chapter 11 reorganization proceedings. However, commercial bank insolvencies are governed by the Federal Deposit Insurance Act and are administered by the FDIC. These two resolution processes?corporate bankruptcy and bank receiverships?differ in a number of significant ways, including the type of proceeding (judicial versus administrative); the rights of managers, stockholders, and creditors in the proceedings; the explicit and implicit goals of the resolution; the prioritization of creditors? claims; the costs of administration; and the timeliness of creditor payments. This article elucidates these differences and explores the effectiveness of the procedural differences in achieving the stated goals.

Suggested Citation

  • Robert R. Bliss & George G. Kaufman, 2006. "A comparison of U.S. corporate and bank insolvency resolution," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 30(Q II), pages 44-55.
  • Handle: RePEc:fip:fedhep:y:2006:i:qii:p:44-55:n:v.30no.2
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    1. George G. Kaufman, 2004. "Depositor Liquidity and Loss Sharing in Bank Failure Resolutions," Contemporary Economic Policy, Western Economic Association International, vol. 22(2), pages 237-249, April.
    2. Bliss, Robert R. & Kaufman, George G., 2006. "Derivatives and systemic risk: Netting, collateral, and closeout," Journal of Financial Stability, Elsevier, vol. 2(1), pages 55-70, April.
    3. Walker F. Todd, 1994. "Bank receivership and conservatorship," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct.
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    2. Annemarie van der Zwet, 2011. "Crisis Management Tools in the EU: What Do We Really Need?," DNB Occasional Studies 902, Netherlands Central Bank, Research Department.
    3. Snezana Popovčić-Avrić & Vule Mizdraković & Marina Đenić, 2013. "Analysis of Financial Structure of the Serbian Banking Sector: Impact of the Financial Crisis," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 2(2), pages 81-92.
    4. Marinč, Matej & Rant, Vasja, 2014. "A cross-country analysis of bank bankruptcy regimes," Journal of Financial Stability, Elsevier, vol. 13(C), pages 134-150.
    5. Bennett, Rosalind L. & Unal, Haluk, 2014. "The effects of resolution methods and industry stress on the loss on assets from bank failures," Journal of Financial Stability, Elsevier, vol. 15(C), pages 18-31.
    6. Michiel Bijlsma & Jeroen Klomp & Sijmen Duineveld, 2010. "Systemic risk in the financial sector; a review and synthesis," CPB Document 210.rdf, CPB Netherlands Bureau for Economic Policy Analysis.

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    Keywords

    Bankruptcy; Bank failures;

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