between the transfer of the bankrupt company’s assets to the New FHC and the distribution of securities in New FHC in satisfaction of all claims left behind in the bankruptcy estate. o
Securities Laws. The Bankruptcy Code should be amended to grant an exemption to a New FHC to which a publicly traded SIFI in bankruptcy has transferred substantially all of its assets in a Section 363 transfer in order to comply with applicable securities laws between the transfer of the failed SIFI’s assets to the New FHC and the distribution of securities in New FHC in satisfaction of all claims left behind in the bankruptcy estate.
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Relative Priority. If necessary to facilitate early intervention without creating legitimate claims under any constitutional protections of property rights, and to avoid disputes over the residual value of a failed company or any new bank holding companies used in a SPOE recapitalization strategy under the Bankruptcy Code, a bankruptcy or district court should be allowed to cause warrants or other junior securities to be distributed to junior claimants and otherwise to distribute value to stakeholders left behind in a receivership on a relative priority basis, rather than pursuant to the absolute priority rule.
This recommendation is parallel to the recommendation on relative priority in the first set of recommendations above. If that recommendation for OLA is implemented, this parallel recommendation is essential to ensure that the distributional rules in bankruptcy and OLA do not diverge.
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Cross-Border Cooperation. A process should be established that requires the FDIC and the Federal Reserve to explain what they will do to foster crossborder cooperation in bankruptcy proceedings, including measures to:
Ring-Fencing. Prevent host-country ring-fencing when a SIFI’s toptier holding company is being resolved in a bankruptcy proceeding, and U.S. ring-fencing when a SIFI’s top-tier holding company is being resolved in a foreign resolution or insolvency proceeding.
Cross-Defaults. Encourage host countries to enact laws similar to Section 210(c)(16) of the Dodd-Frank Act, which would override contractual termination rights in financial contracts that arise solely because of the failure and resolution of a counterparty’s parent holding company or another affiliate, provided that the contracts are assumed by a creditworthy bridge financial company or third party within a specified period of time.
Cooperation Agreements. Enter into advance cooperation agreements with foreign regulators.
Too Big to Fail: The Path to a Solution | 13