In this report, we build on our prior alert on Treasury’s latest reform report focused on ways to redesign resolutions in crises that threaten financial-market stability.  Treasury’s approach includes a new Chapter 14 of the Bankruptcy Code to handle most, if not all, of these cases along with a series of changes designed to ensure that any resolution costs the market, not taxpayers.  Although the President last April (see Client Report RESOLVE44) rejected use of Dodd-Frank’s orderly-liquidation authority (OLA) and Secretary Mnuchin cast considerable doubt on whether Treasury would ever authorize it, the new report stands by OLA even as it recommends significant changes to reduce the chances of creditor, counterparty, or acquirer advantage.  As we noted following the April action, the Administration’s stand at the time led regulators around the world to increase demands that U.S. operations in their nations be ring-fenced or otherwise subsidiarized to ensure orderly resolution.  It was also feared that ambiguities over OLA would exacerbate panics should any large American financial institution show signs of weakness.  With this report, Treasury has conceded to international and industry pressure, rejecting arguments voiced by Chairman Hensarling (R-TX) and other conservative Republicans who have long sought to repeal this Dodd-Frank provision.

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