On September 15, 2008, Lehman Brothers filed the largest bankruptcy in U.S. history. Several major financial market participants already had been forced to sell their businesses or shutter their operations, and, after Lehman’s failure, others were bailed out by the U.S. government.
The global financial crisis of 2007-08 raised significant concerns about systemic risks arising from the failure of large financial market participants, and exposed a level of market risk and interconnectedness that previously had not been comprehended. Congress responded to this “Too Big to Fail” problem with the Dodd-Frank Wall Street Reform and Consumer Protection Act, which among other things included a new Orderly Liquidation Authority (OLA) for resolving large financial market participants, a “resolution planning” requirement for systemically important financial firms, mandatory clearing for many classes of derivatives, and new powers for financial regulators designed to improve financial market stability.
OLA, together with structural changes to the way large global banks are funded, have led to new resolution strategies for addressing the failure of one of these firms. The single-point-of-entry resolution strategy attempts to create an opportunity for global financial firms to be restructured, with losses imposed on equity and debt investors according to their order of priority, while continuing the firm’s operations and preventing a disorderly exit from the market. This strategy represents a significant change from what was experienced during the financial crisis, and has significant implications for investors and transaction counterparties.
Ten years after the global financial crisis, even as parts of Dodd-Frank are facing attack in both the House and Senate, market participants and regulators are still laboring to implement Dodd-Frank. The new resolution regimes and strategies remain untested; Bankruptcy Code amendments to facilitate the implementation of resolution plans (known as “living wills”) have been proposed in both the House and Senate; and the Fed recently enacted rules prohibiting global systemically important banking organizations (GSIBs) and their subsidiaries from entering into financial contracts unless they include provisions limiting the counterparty’s ability to exercise close-out rights upon the commencement of resolution proceedings.
Join us on Thursday, April 19, for a special symposium featuring thought leaders from academia and the bench, as well as representatives from U.S. and European governmental agencies and private organizations, as we take a look back at the aftermath of the 2007-08 financial crisis, and evaluate the regulatory and market efforts made to improve the resolution process for large financial firms. Symposium topics will include:
Resolving systemically important financial institution (SIFIs) using the single-point-of-entry resolution strategy, either in OLA proceedings or under existing chapter 11 of the Bankruptcy Code, and proposed amendments to the Bankruptcy Code designed to facilitate single-point-of-entry resolution, including discussion of the strengths and weaknesses of each approach
Preserving the value of qualified financial contracts during the resolution process, recent U.S. rules regarding permitted default rights, the ISDA Resolution Stay Protocols, and implications for counterparties
Issues with existing safe-harbored contract-termination practices and the calculation of damages
Multiple-point-of-entry proceedings, non-SIFI financial firm resolution, and clearing organization resolution
International cooperation and cross-border issues impacting the resolution of SIFIs and GSIBs
The role of clearing organizations, repo counterparties and settlement banks in the resolution process
You don’t want to miss these stimulating discussions!