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New legislation introduced in the U.S. Senate would put an end to taxpayer-funded bailouts of large financial institutions in favor of creating a new provision in the federal bankruptcy code for these entities.
Known as the Taxpayer Protection and Responsible Resolution Act, the bill uthored by senators John Cornyn, R-Tx., and Pat Toomey, R-Penn., would repeal Title II of the Dodd-Frank Act, according to Wolters Kluwer. Cornyn and Toomey would replace Title II, which provides liquidation authority for failed financial firms, be adding a Chapter 14 the federal bankruptcy code designed for certain ailing financial institutions. Having such institutions file for bankruptcy, the senators believe, would be a better way for them to address their fiscal shortcoming than allowing them to avail themselves of a process that Cornyn and Toomey believe is susceptible to political manipulation.
In a bankruptcy, the senators argue, the burden of bad financial decisions would be on the shoulders of owners and creditors rather than taxpayers. The institution’s assets and liabilities would transfer to a new, solvent bridge company, owned by the bankrupt estate, that would be responsible for meeting the firm’s obligations