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How well does bankruptcy work when large financial firms fail? Some lessons from Lehman Brothers

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  • Thomas J. Fitzpatrick
  • James B. Thomson

Abstract

There is disagreement about whether large and complex financial institutions should be allowed to use U.S. bankruptcy law to reorganize when they get into financial difficulty. We look at the Lehman example for lessons about whether bankruptcy law might be a better alternative to bailouts or to resolution under the Dodd-Frank Act?s orderly liquidation authority. We find that there is no clear evidence that bankruptcy law is insufficient to handle the resolution of large complex financial firms.

Suggested Citation

  • Thomas J. Fitzpatrick & James B. Thomson, 2011. "How well does bankruptcy work when large financial firms fail? Some lessons from Lehman Brothers," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct.
    • Handle: RePEc:fip:fedcec:y:2011:i:oct26:n:2011-23
    DOI: 10.26509/frbc-ec-201123
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    Cited by:

    1. Jean Helwege & Gaiyan Zhang, 2016. "Financial Firm Bankruptcy and Contagion," Review of Finance, European Finance Association, vol. 20(4), pages 1321-1362.
    2. Mr. Daniel C Hardy, 2013. "Bank Resolution Costs, Depositor Preference, and Asset Encumbrance," IMF Working Papers 2013/172, International Monetary Fund.

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    Keywords

    Bankruptcy; Financial risk management;

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