The US House of Representatives passed a bill yesterday that would allow banks to begin the bankruptcy process voluntarily.  The bill, “The Financial Institutional Bankruptcy Act of 2014” passed with bipartisan support.  The intent of the bill is to promote confidence in the financial banking sector.  In 2008, tax dollars were used to bail out large financial institutions and Congress is trying to find a way to prevent another financial crisis without using taxpayer money.  Unfortunately, the government is still allowing the fear of systemic risk to rule legislation instead of letting the free market take its course.  According to Ranking Member John Conyers, a Democrat from Michigan, the Dodd-Frank financial reform law allows for an administratively-driven resolution process to a financial institution’s bankruptcy rather than continuous taxpayer bailouts.

Below is a summary of the bill by the Congressional Research Service:

Financial Institution Bankruptcy Act of 2014 – Amends federal bankruptcy law with respect to a “covered financial corporation” incorporated or organized under any federal or state law (other than a stockbroker, a commodity broker, or a domestic or foreign insurance company or financial institution meeting certain criteria) that is:
(1) a bank holding company; or
(2) a corporation that exists for the primary purpose of owning, controlling, and financing its subsidiaries, has total consolidated assets of $50 billion or greater, and whose annual gross revenues or consolidated assets     meet specified tests.
Adds “Subchapter V – Liquidation, Reorganization, or Recapitalization of a Covered Financial Corporation,” setting forth requirements and prohibitions regarding:
(1) commencement of a case concerning a covered financial corporation;
(2) a special trustee and bridge company;
(3) special transfer of the property of the estate in bankruptcy;
(4) treatment of qualified financial contracts and affiliate contracts;
(5) licenses, permits, and registrations;
(6) exemption from securities laws; and
(7) inapplicability of certain avoiding powers.
Allows conversion to chapter 7 (Liquidation) of a case under subchapter V if certain conditions are met.
Amends the Judicial Code to require the Chief Justice of the United States to designate: (1) at least three district judges in at least four circuits to serve on an appellate panel available to hear appeals in a bankruptcy case concerning a covered financial corporation, and (2) a panel of at least 10 bankruptcy judges.
Prescribes requirements for the assignment of bankruptcy judges to subchapter V cases.