Seton Hall University School of Law Professor Stephen Lubben says that it is time to stop pretending big banks and other systemically important financial institutions (SIFIs) can be wound down in bankruptcy court, WSJ Pro Bankruptcy reported. In an article set for publication in the Texas Law Review, Lubben says that most attempts to address big bank insolvencies try to squeeze financial institutions with special needs into a system with a different set of priorities. Since the global financial crisis and the 2008 bankruptcy of Lehman Brothers Holdings Inc., the question of what to do with big banks facing insolvency has vexed lawmakers. Without a credible threat of failure, government backstops encourage banks to take substantially greater risks, according to Lubben. Shareholders with nothing to lose have every incentive to leave taxpayers holding the bag, he writes. Read more.
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