Two Senate Republicans have introduced legislation to repeal the orderly-liquidation authority (OLA) provisions in Title II of the Dodd-Frank Act and replace them with a new Chapter 14 of the Bankruptcy Code. Sponsors of this approach hope it will end any risk of taxpayer support for large financial-services firms through its handling of complex qualified financial contracts (QFCs) under stress. However, it remains unclear if this approach is sufficient to cure contagion risk if more than one large financial institution is at risk of failure or if the troubled firm in question is so inter-connected with others as to precipitate contagion risk because of remaining complexities in complex financial instruments, especially those held by non-bank SIFIs that would not come under the new resolution protocol.
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