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The Basic Problem with "Chapter 14"

posted by Stephen Lubben

There has been a big push, from several different directions, to develop a more "free market" – as compared with Dodd-Frank's OLA – approach to financial institution insolvency, the Hoover Institute's "chapter 14" proposal being the most famous of these "pushes."

The problem is in the funding. Chapter 11 depends on private DIP funding, but even the largest DIP loans are much smaller than the liquidity needs of a SIFI.

And then there is another problem, highlighted in this morning's issue of the Daily Bankruptcy Review, which lists the top DIP lenders of 2013. Because the list is behind the DBR firewall, I'll let your know that it begins as follows:

  1. JPMorgan
  2. Credit Suisse
  3. Bank of America
  4. Goldman Sachs
  5. Citi

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