[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]

                      REGULATION REFORM (PART II)



                               BEFORE THE

                       SUBCOMMITTEE ON COURTS AND
                           COMPETITION POLICY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES


                             FIRST SESSION


                           NOVEMBER 17, 2009


                           Serial No. 111-106


         Printed for the use of the Committee on the Judiciary


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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida               STEVE KING, Iowa
STEVE COHEN, Tennessee               TRENT FRANKS, Arizona
  Georgia                            JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico         TED POE, Texas
MIKE QUIGLEY, Illinois               JASON CHAFFETZ, Utah
JUDY CHU, California                 TOM ROONEY, Florida
LUIS V. GUTIERREZ, Illinois          GREGG HARPER, Mississippi
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California

       Perry Apelbaum, Majority Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel

             Subcommittee on Courts and Competition Policy

           HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chairman

JOHN CONYERS, Jr., Michigan          HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia               JASON CHAFFETZ, Utah
ROBERT WEXLER, Florida               BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            Wisconsin
MELVIN L. WATT, North Carolina       DARRELL ISSA, California
MIKE QUIGLEY, Illinois               GREGG HARPER, Mississippi

                    Christal Sheppard, Chief Counsel

                    Blaine Merritt, Minority Counsel
                            C O N T E N T S


                           NOVEMBER 17, 2009


                           OPENING STATEMENTS

The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Chairman, Subcommittee 
  on Courts and Competition Policy...............................     1
The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Ranking Member, Subcommittee on 
  Courts and Competition Policy..................................     2
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Chairman, Committee on the 
  Judiciary, and Ranking Member, Subcommittee on Courts and 
  Competition Policy.............................................     3
The Honorable Jason Chaffetz, a Representative in Congress from 
  the State of Utah, and Member, Subcommittee on Courts and 
  Competition Policy.............................................     6


Mr. Christopher L. Sagers, Associate Professor of Law, Cleveland-
  Marshall College of Law, Cleveland, OH
  Oral Testimony.................................................     8
  Prepared Statement.............................................    10
Mr. Edwin E. Smith, Bingham McCutchen, LLP, on behalf of the 
  National Bankruptcy Conference, Fairfax, VA
  Oral Testimony.................................................    47
  Prepared Statement.............................................    49
Mr. Michael A. Rosenthal, Gibson, Dunn & Crutcher, LLP, New York, 
  Oral Testimony.................................................    58
  Prepared Statement.............................................    60
Mr. Charles W. Calomiris, Henry Kaufman Professor of Financial 
  Institutions, Columbia Business School, New York, NY
  Oral Testimony.................................................   105
  Prepared Statement.............................................   108


Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, 
  Chairman, Committee on the Judiciary, and Member, Subcommittee 
  on Courts and Competition Policy...............................     4
Prepared Statement of the Honorable Steve Cohen, a Representative 
  in Congress from the State of Tennessee, and Chairman, 
  Subcommittee on Commercial and Administrative Law..............     7
Prepared Statement of the Honorable Lamar Smith, a Representative 
  in Congress from the State of Texas, and Ranking Member, 
  Committee on the Judiciary.....................................   123

                      REGULATION REFORM (PART II)


                       TUESDAY, NOVEMBER 17, 2009

              House of Representatives,    
                 Subcommittee on Courts and
                                 Competition Policy
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 1:02 p.m., in 
room 2237, Rayburn House Office Building, the Honorable Henry 
C. ``Hank'' Johnson, Jr. (Chairman of the Subcommittee) 
    Present: Representatives Johnson, Conyers, Coble, Chaffetz, 
and Goodlatte.
    Staff present: (Majority) Christal Sheppard, Subcommittee 
Chief Counsel; Anant Raut, Counsel; Elisabeth Stein, Counsel; 
Rosalind Jackson, Professional Staff Member; and (Minority) 
Stewart Jeffries, Counsel.
    Mr. Johnson. This hearing on the Committee on the 
Judiciary, Subcommittee on Courts and Competition Policy will 
now come to order.
    Without objection, the Chair is authorized to declare a 
    Today the Subcommittee holds its second hearing examining 
the implications of companies that are ``Too big to Fail.'' 
During our first hearing in April, we asked two questions: Are 
there such things as institutions that are too big to fail? And 
if so, do they represent a failure of the antitrust laws?
    At the time, our panel of experts concluded that yes, there 
are companies whose size makes them systematically significant 
in our economy. However, the antitrust laws don't need to be 
changed on account of these companies.
    If anything, these companies merit greater enforcement of 
the antitrust laws that currently exist.
    Our country remains in the grip of a grim economic 
downturn. Since the collapse of Lehman Brothers in September of 
2008, the unemployment rate in my home State of Georgia has 
climbed from 6.6 percent to 10.2 percent today. The 
metropolitan Atlanta area has lost more than 124,000 jobs 
during that time.
    Today we have before us several pieces of legislation 
proposed by the Treasury to systematically unwind these large 
companies once they are on the verge of failure.
    The Administration points to the collapse of companies like 
Lehman Brothers and warns that this new authority is vital to 
preventing another big company from bringing down the economy 
as it goes under.
    I, for one, am skeptical. The legislation proposed by the 
Treasury raises a number of troubling issues under this 
Subcommittee's jurisdiction.
    The resolution authority would, in some instances, sidestep 
antitrust oversight entirely.
    Decisions about which competitor gets a failing company's 
assets could be made without the input of the antitrust 
enforcement agencies, creating a new generation of too big to 
fail companies requiring another multibillion-dollar bailout 
down the road.
    Courts which have traditionally played a pivotal role in 
the normal bankruptcy process would also have their oversight 
    Decisions about the distribution of assets could be made 
without a judge watching over the process to make sure that the 
shareholders and the general public are treated fairly.
    In the wake of great crises, whether financial or national 
security in nature, it is tempting for new Administrations to 
dismiss existing law as inadequate and claim that new 
approaches and new powers are necessary for a new kind of 
    But what we have learned is that agencies empowered with 
emergency authority can't be solely responsible for determining 
when and how it gets used. Checks and balances are a necessary 
restraint on the powers granted by Congress.
    I hope that our discussion today will help us better 
understand what protections need to be built into this proposed 
resolution authority to ensure that it is used sparingly and in 
the best interests of the American public.
    I now recognize my colleague Howard Coble, the 
distinguished Ranking Member of the Subcommittee, for his 
opening remarks.
    Mr. Coble. I thank you, Mr. Chairman.
    And good to have the panelists with us today.
    Mr. Chairman, thank you for calling today's hearing, which 
is the second that this Subcommittee has held on the role of 
antitrust in correcting the current economic crisis.
    Last April, you will recall we heard from former acting 
assistant attorney general Deb Garza that antitrust laws did 
not create the current economic crisis, and the antitrust 
division was capable of conducting antitrust review of proposed 
asset sales under the TARP plan. That is the Troubled Asset 
Relief Program.
    Last month I attended a Commercial and Administrative Law 
Subcommittee hearing on the role of the bankruptcy law and 
antitrust in resolving the existing financial crisis.
    At that hearing, under direct questioning from Chairman 
Conyers, representatives of the Treasury Department and the 
Federal Deposit Insurance Commission told the Subcommittee that 
the Administration's bill did not alter antitrust review of any 
proposed sale of assets in a government takeover of a failing 
financial entity.
    However, it appears from a subsequent markup by the 
Financial Services Committee and through written statements of 
at least some of the witnesses here today that this proposal 
does alter antitrust review.
    So my question to all the witnesses is does this bill alter 
antitrust review and, if so, how is it altered, and does it 
protect consumers?
    The proposed resolution authority that is before this 
Congress does not change my mind about the wisdom or lack 
thereof of governmental bailouts. The Constitution gives 
Congress the authority to establish bankruptcy laws and 
procedures, and in my estimation the bankruptcy system has many 
more public checks and balances.
    It is my understanding, Mr. Chairman that many of our 
colleagues on the Financial Services Committee and on the 
Judiciary Committee have suggested some changes to the 
bankruptcy laws to address this kind of large-scale financial 
crisis that we faced last year.
    Personally, I am far more comfortable with that approach to 
this issue, because it is non-biased. It is proven and 
reliable. And it provides a solid foundation from which 
businesses can recover.
    In any event, I would like to thank you, Mr. Chairman, and 
Chairman Johnson for protecting the Committee's jurisdiction 
with respect to bankruptcy and antitrust laws.
    These well-established laws have been the bulwark of 
America's capitalist system and any financial services reform 
should stem from their well-accepted principles.
    And, Mr. Chairman, I am going to have to depart imminently 
because I am scheduled to handle two bills on the floor, but 
the distinguished gentleman from Utah has promised to stand in 
for me, if that is okay. And I yield back.
    Mr. Johnson. I thank the gentleman for his statement.
    And I now recognize John Conyers, a distinguished Member of 
the Subcommittee and also the Chairman of the Committee on 
    Mr. Conyers. Thank you very much, Chairman Johnson.
    And to my colleagues here, this is a hearing that is part 
of the larger financial regulatory reform package that we have 
jurisdiction over. That is, as I have explained, Title 7, 
improvements to regulation of over-the-counter derivatives, and 
Title 12, enhanced resolution authority.
    And I am grateful for the four witnesses that are here.
    Now, to me, our jurisdiction has been delineated. The 
Chairman of Finance Committee, Chairman Frank, has assured us 
that our determinations in these two titles will be adhered to.
    At the same time, we have the larger issue, and I don't 
know how we go about taking both of these things into 
consideration. I think it is a mistake for us to think only 
narrowly in terms of our two titles in the bill, because 
ultimately we will all be collectively voting on the larger 
    And we have had hearings. I have two folders of hearings of 
the Committee. Some have been in your Committee. I think one 
has been in Chairman Cohen's Committee.
    And we have circling overhead--and I would encourage the 
witnesses to feel free to go beyond the titles that we have 
actual jurisdiction. But I have got a notebook that tries to 
lay out the larger positions on this financial regulatory 
reform, which is coming now after more than a trillion dollars 
has already been expended.
    I mean, somebody needs to help me understand how we just 
thought about regulatory reform and the horse is out of the 
    Now, Chris Dodd and Barney Frank have two seriously 
different views about this thing. And Charles Schumer has yet 
another position on this. And the gentleman, I think, from 
Alabama, Shelby, has a position on this. The Nobel economist 
Joseph Stiglitz has a very distinct view about this.
    And so to me, Chairman Johnson and my colleagues, what 
becomes important here is that we try to understand the 
relationship between what is in our jurisdiction and what 
everybody else is thinking and doing both in the other body and 
in the House--the Finance Committee, the Committees on the--in 
the Senate.
    And of course, the Administration has its team that is sort 
of omnipresent in this whole situation.
    So I am going to submit an opening statement and look 
forward to the testimony from our witnesses. Thank you.
    [The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
  in Congress from the State of Michigan, Chairman, Committee on the 
  Judiciary, and Member, Subcommittee on Courts and Competition Policy
    The financial regulatory reform package incubated in the Treasury 
Department and hatched in the Financial Services Committee appears to 
be in ailing health.
    The effort to regulate financial derivatives, the complex and 
highly speculative instruments at the heart of the meltdown last year, 
and the effort to create a new Consumer Financial Protection Agency to 
protect Americans from abusive, deceptive, and predatory lending, are 
both being targeted by lobbyists intent on weakening them.
    If the lobbyists succeed--and right now they appear to be gaining--
this important effort will be squandered, and the resulting legislation 
won't be worth supporting.
    Turning to the proposed new special resolution authority for the 
FDIC to take over failing financial institutions that are so 
interconnected to the wider financial system that their failure puts 
the wider system at undue risk, there is another danger--that if we are 
not careful, we will end up throwing some fundamental American values 
overboard. We need to make sure that doesn't happen.
    We must ensure that the rights of innocent citizens who get caught 
up in the tangents of a giant financial institution's far-flung 
activities are not cast aside, while favored interests are allowed to 
jump to the head of the line and grab the lion's share.
    We must preserve full-strength antitrust authority against 
anticompetitive mergers, so we don't wake up with just a handful of 
financial institutions that are even more gargantuan than the ones we 
started with.
    To ensure these values are protected, we can't just turn everything 
over to a government liquidator and stand back.
    We need to preserve the role of bankruptcy law in providing fair 
treatment for all who have claims against the financial institution, 
not just the favored few.
    And we need to preserve the role of the antitrust laws, in all of 
their vitality.
    If extraordinary powers are needed to respond to a systemic 
financial emergency, we should make sure that those powers are 
triggered only when there truly is such an emergency. We should make 
sure that those powers are limited in scope and duration--that they 
displace the important American values reflected in the bankruptcy and 
antitrust laws, if at all, only to the limited extent, and only for the 
limited duration, that is necessary for responding effectively to the 
    And we should make sure that any harm to those values that results 
from the exercise of those powers should be reversible once the 
emergency has subsided.
    We need to keep in mind that this is not about bailing out Wall 
    It is not about helping the institutions that brought us this 
crisis pay their brokers billions of dollars in new bonuses. It is not 
about funneling money to those institutions as counterparties in 
derivative contracts, as a just-released report by the TARP Inspector 
General indicates Secretary Geithner was instrumental in doing last 
year when he was head of the Federal Reserve Bank in New York.
    It is not about excusing those institutions from giving struggling 
homeowners a chance at reasonable mortgage terms that avoid needless 
    I for one am not comforted by Goldman Sachs Chairman and CEO Lloyd 
Blankfein's recent statement insisting that he is just a banker ``doing 
God's work'' and that his mammoth company is fulfilling ``a social 
    Resurgent Wall Street profits and bonuses clearly are not trickling 
down to Main Street, or Woodward Avenue.
    In Detroit, the unemployment rate is nearly 28 percent. 195 homes 
there are being taken into the foreclosure process each day. One in 
three people in my district are at or below the poverty line.
    Let's not forget the lessons of the Gramm-Leach-Bliley Act of 1999 
and the Glass-Steagall Act of 1933. Ten years ago, Gramm-Leach-Bliley 
repealed the firewall set up in Glass-Steagle between the casino on 
Wall Street and the private investment engines of Main Street. The 
repeal allowed for the creation of giant financial supermarkets that 
could own investment banks, commercial banks, and insurance firms, 
thereby clearing the way for consolidation into companies too big and 
intertwined to fail.
    It also led to deregulation that helped cause the current economic 
    I support the efforts in the Financial Services Committee to build 
the regulatory infrastructure needed to protect our economy against 
ever again being held hostage to fears that irresponsible financial 
giants are too big to fail.
    Our job in the Judiciary Committee is to ensure that this is 
accomplished in an effective and responsible manner that respects these 
other important American values.
    So I am pleased that the Courts and Competition Subcommittee is 
continuing our examination into these issues. I hope our witnesses 
today can shed light on three issues in the legislation to establish 
special resolution authority for financial institutions that pose undue 
systemic risk.
    First, are there adequate antitrust safeguards? We don't want our 
response to a financial crisis to lead to even larger and more 
concentrated institutions, with less competition, and higher prices for 
    FDIC Special Advisor for Policy Michael Krimminger's statement 
before our Committee last month that ``in a systemic context, there can 
be cases in which there is an override of the anti-competitive 
consequences'' was troubling to those who care about our economic 
    Those considerations need to be carefully reconciled, not set 
against each other. I hope our witnesses can address how to maintain 
meaningful antitrust values under the new resolution mechanism.
    Second, are there fair and balanced protections for those affected 
by the insolvency?
    The standard should be the protections set out carefully in our 
Bankruptcy Code. Any departures from those Bankruptcy Code protections 
should be few, and justified, and each carefully limited in scope and 
duration to what is necessary to avert the systemic financial crisis.
    The Financial Services Committee bill is modeled on the authority 
given to the FDIC when a bank with FDIC-insured deposits fails.
    But the powers and priorities that are appropriate when FDIC-
insured deposits are a dominant factor may not be appropriate when 
there is a greater variety of competing claims and claimants--labor 
contracts, pensions, and garden variety business debts, to name just a 
    So while a receiver should have the power to act quickly to 
conserve systemically critical assets and liabilities, that power 
should be exercised in a manner that respects the rights of other 
innocent parties.
    I hope our witnesses today can address how to fairly protect these 
rights in the context of the need for quick action in a financial 
emergency, and create a measure of predictability that will enhance 
    Third, is there appropriate judicial review to guard against 
arbitrary and unfair government action?
    Under the Bankruptcy Code, it is a court that appoints a trustee to 
act as conservator or liquidator, oversees the trustee, and ultimately 
reviews and approves the process by which the business is reorganized 
or liquidated and claims are resolved.
    Under the Financial Services Committee bill, once the failure of 
the business is deemed to be a systemic risk to the financial system, 
the new conservator or receiver takes over.
    Any bankruptcy proceedings are abruptly terminated, and new 
bankruptcy proceedings are precluded.
    Instead of an open process, under uniform rules, with direct court 
oversight, we have an opaque process, under procedures that give the 
conservator or receiver broad discretion.
    I hope our witnesses can address how to make the resolution process 
more transparent and predictable, under appropriate judicial review.
    Clearly, the status quo, where too-big-to-fail institutions have 
privatized gains and received taxpayer-subsidized losses, is not 
    We need a workable mechanism to allow large, complex, 
interconnected, global financial companies to fail when they should, 
while managing the ripple effects.
    But we need to ensure that due process, fairness, transparency, and 
pro-competition principles are core ingredients of that mechanism.
    I commend the collaboration between Courts and Competition Policy 
Subcommittee Chairman Hank Johnson and Commercial and Administrative 
Law Subcommittee Chairman Steve Cohen in putting together this third in 
a series of important and thought-provoking hearings on the too-big-to-
fail issue, and I look forward to the testimony.

    Mr. Johnson. Thank you, Mr. Chairman.
    I now recognize the gentleman from Utah, Mr. Chaffetz, for 
his statement.
    Mr. Chaffetz. Well, thank you. Thank you, Mr. Chairman.
    And thank you, Chairman Conyers and Ranking Member Coble.
    And I appreciate the witnesses being here today. This is a 
very, very important subject and topic. I want to do more 
hearing than making a statement.
    I just wish to wholeheartedly support the verbal comments 
Chairman Conyers made and some of the deep concerns about the 
various approaches to this.
    I, too, have some concerns I would appreciate being 
addressed and I am sure you share many of these as well. I want 
to make sure we are staying within the constitutional duties 
and bounds that we are--have been given in our Constitution.
    I worry about our troubled firms getting even bigger. You 
know, one of the amazing statistics through all this is we talk 
about too big to fail--is if you actually go back and analyze 
these firms, we have less firms and they are even bigger than 
ever, and so have--through our public policy actually made the 
situation more vulnerable as opposed to actually solving it.
    Obviously, we want to ensure the American people that we 
are doing--be good stewards of their money. I have serious 
troubles and concerns with the TARP, and the bailouts, and the 
so-called stimulus, and things that have gone on in the past.
    I want to make sure that we are maximizing transparency. I 
think one of the benefits that--through going through 
bankruptcy, as painful and as derogatory as that term might be, 
there are certainly benefits in terms of exposure in going 
through a process.
    We have seen companies, large companies, very successfully 
go through the bankruptcy process and then go on to thrive.
    And I want to make sure that we don't--aren't injecting 
politics into it. I think to the degree we can have an even 
hand and that public policy is not driven by political 
maneuvering, the better the system will be.
    So again, thank you, Chairman, for calling this hearing. I 
look forward to the interaction and appreciate you all being 
here today. Thank you. Yield back.
    Mr. Johnson. I thank the gentleman for his opening 
    All Members' opening statements will be included in the 
    And I would like to enter into the record a statement from 
our esteemed colleague, the Chairman of the Commercial and 
Administrative Law Subcommittee, Mr. Steve Cohen of Tennessee.
    [The prepared statement of Mr. Cohen follows:]
 Prepared Statement of the Honorable Steve Cohen, a Representative in 
  Congress from the State of Tennessee, and Chairman, Subcommittee on 
                   Commercial and Administrative Law
    I applaud Chairman Hank Johnson and the Subcommittee on Courts and 
Competition Policy for continuing the House Judiciary Committee's 
inquiry into the Administration's proposal for enhanced resolution 
authority to wind-down failing, systemically important non-bank 
financial institutions. Several weeks ago, I presided over Part I of 
this hearing series before the Subcommittee on Commercial and 
Administrative Law. During that hearing, my Subcommittee posed some 
tough questions to Administration officials concerning the need for 
resolution authority for such nonbank institutions as well as the 
numerous bankruptcy, administrative law, and antitrust concerns raised 
by the Administration's proposal. We also heard from several bankruptcy 
and antitrust experts who further elaborated on these concerns.
    The Administration's resolution authority proposal would create an 
alternative to the bankruptcy system for dealing with failing non-bank 
financial institutions that are so interconnected with the Nation's 
financial system that their disorderly failure would destabilize the 
national and global financial systems. The ordinary bankruptcy process, 
it is said, would be too slow to deal with the imminent collapse of 
such institutions and would create too much uncertainty in the 
financial markets. The proposed resolution authority would be modeled 
on the authority of the Federal Deposit Insurance Corporation to wind-
down failing commercial banks.
    While I understand the Administration's desire for the authority to 
act quickly to stave off dangerous shocks to the Nation's financial 
system, I am concerned that its proposed resolution process lacks the 
transparency and due process safeguards of the bankruptcy process. I am 
not unsympathetic to the argument that some type of authority for the 
executive branch to act quickly in the face of the impending failure of 
a systemically important nonbank financial institution is important. 
What I am not yet convinced of is that an alternative to bankruptcy is 
needed with respect to the claims resolution process--that is, the 
process that occurs after a failing firm has been stabilized and its 
core assets have been sold to a third party or transferred to a bridge 
holding company. I am particularly concerned about the effect of the 
Administration's proposal with respect to claims for employee and 
retiree compensation and benefits.
    I am also deeply concerned about the creation of the Financial 
Services Oversight Council, which, under the legislation, would not be 
an ``agency'' for purposes of any State or Federal law and, therefore, 
not subject to the Administrative Procedure Act and other restrictions 
on agency power. As I have said before in other contexts, as a 
legislator for more than 30 years, such vast expansions of unfettered 
executive power trouble me greatly. The formation of the Council should 
be reconsidered. Even if not eliminated, there should be far greater 
Congressional oversight authority over the Council's activities.

    Mr. Johnson. With his oversight over the bankruptcy laws, 
Chairman Cohen shares our interest and concerns regarding the 
proposed reform legislation. And without objection, I will so 
include his statement.
    Now, I am now pleased to introduce the witnesses for 
today's hearing. Our first witness is Professor Chris Sagers. 
Professor Chris Sagers is an Associate Professor of Law at the 
Cleveland Marshall College of Law in Cleveland, Ohio. He is an 
expert in the fields of antitrust and corporate law.
    Welcome, Professor Sagers.
    Our next witness is Mr. Edwin Smith. Mr. Smith is a Partner 
at the law firm of Bingham McCutchen LLP. He is here today 
testifying on behalf of the National Bankruptcy Conference.
    Welcome, Mr. Smith.
    Next we have Mr. Michael A. Rosenthal, who is a partner at 
the law firm of Gibson Dunn & Crutcher LLP. Mr. Rosenthal is 
co-chair of the firm's business restructuring and 
reorganization practice group.
    Welcome, Mr. Rosenthal.
    And finally, we have Professor Charles Calomiris. Professor 
Calomiris is the Henry Kaufman Professor of Financial 
Institutions at Columbia Business School.
    Welcome, Professor Calomiris.
    Thank you all for your willingness to participate in 
today's hearing. Without objection, your written statements 
will be placed into the record, and we would ask that you limit 
your oral remarks to 5 minutes.
    You will note that we have a lighting system that starts 
with a green light. At 4 minutes, it turns yellow and then red 
at 5 minutes.
    After each witness has presented his or her testimony, 
Subcommittee Members will be permitted to ask questions subject 
to the 5-minute rule limit.
    Professor Sagers, please begin your testimony.


    Mr. Sagers. Thank you, Mr. Chairman and Members of the 
Committee. It is, again, my pleasure and privilege to be here.
    I am glad that the larger question has been asked about 
what is an appropriate approach to this problem overall, rather 
than the specific antitrust questions that I was asked to talk 
    I wish I was competent to give some plenary answer to that 
question and I am not. But I can answer one big question that 
is relevant to it. And I have to begin by disagreeing with 
something that Ms. Garza said. Her comment was quoted again 
here today.
    I am not sure this is a very widely held view or a very 
popular one, but Ms. Garza, again, was acting assistant 
attorney general for antitrust in the Justice Department.
    She was also chair of the Antitrust Modernization 
Commission a couple years ago. She is an eminent figure in 
antitrust and I am sure that many, many people share her view.
    I happen to think that she is wrong in that she said 
antitrust didn't cause this problem. I would be the last person 
to say that antitrust is the only explanation for this problem, 
but let me say one thing.
    We have thousands and thousands of Federal statutes and 
regulations, and we have precisely one that is designed to deal 
with the size and power of private entities, and that is 
Clayton Act Section 7.
    Clayton Act Section 7 nominally has applied to all the many 
mergers and acquisitions that gave rise to TBF--excuse me, TBTF 
firms. It has never been applied in a way that has taken into 
consideration systemic risk.
    Many people right now would say it is impossible for that 
to be done. It shouldn't be done. My basic point here today is 
that that being the case, we don't have any law anywhere to 
deal with this problem.
    Dealing with that problem is a much bigger question, I 
suppose, than I could really talk about in 5 minutes. It is not 
addressed in my written testimony, so I won't pursue it.
    But for what it is worth, that issue is not on the table 
right now anywhere. And I personally think it is a serious 
problem with the overall approach to financial regulatory 
    Having said all that, I only have a couple of minutes left 
to summarize the rest of my testimony. So let me say, rather 
than digging into the details of what is quite a complicated 
issue, I think that everything I had to say in what I--my 
written submission and anything I would have to say today in 
person basically addresses one big issue.
    And that is that there is an attitude that has become quite 
common, especially among the courts and, first among them, the 
Supreme Court that antitrust, however venerable and useful it 
might be in some circumstances, is generally a bit of a tedious 
problem. It is costly, it is clumsy and it is to be avoided 
whenever it can.
    With respect, I happen to believe that that is incorrect. 
And as a peripheral observer of this Committee's process during 
the last couple of months, I am very pleased to say my 
impression is that that sense is shared by at least some 
Members of the Committee, and my impression is, then, that that 
is shared by Members of both parties, at least from what I have 
been able to observe, and that makes me very happy.
    The problem is I happen to think that that attitude is 
reflected in this bill in many ways. It is not anywhere 
explicitly stated in any of the Administration's bills, but--
and it may not have been deliberate, but my impression 
generally is that throughout most of the Administration's 
financial regulatory reform package, the attitude has been ``we 
should avoid or limit antitrust wherever possible because it 
will get in the way of other regulatory objectives.''
    My sense, again, is that that is unfortunate both because I 
think that the difficulty that is said to be associated with 
antitrust in these markets is overstated, and maybe more 
importantly, because competition issues, issues of 
concentration and collusion in financial markets, are actually 
pretty serious, and not only in the--with respect to the sort 
of systemic risk problems I began with.
    They are also serious in more traditional--the more 
traditional sense that those problems limit allocational 
efficiency in these markets in serious ways.
    [The prepared statement of Mr. Sagers follows:]
              Prepared Statement of Christopher L. Sagers

    Mr. Johnson. Thank you, Professor Sagers.
    Mr. Smith, would you proceed, please?


    Mr. Smith. Thank you.
    Mr. Johnson. I think we have an elementary school student 
handling our audiovisual, so give us just a second.
    Mr. Smith. Can you hear me on this microphone? Why don't I 
proceed, then? Thank you.
    Can you hear me now? Okay. Thank you, Mr. Chairman and 
Members of the Committee, and my name is Edwin Smith. I am here 
on behalf of the National Bankruptcy Conference.
    For those of you who don't know, the National Bankruptcy 
Conference is a nonprofit, nonpartisan self-supporting 
organization of about 60 lawyers, academicians and judges.
    We have historically advised Congress on bankruptcy issues, 
and so we are before you today to talk about the resolution 
authority issues that are under discussion in the current bill.
    Part of our concern as a member of the National Bankruptcy 
Conference relates to, of all things, avoiding bankruptcy. What 
we have noticed is that where you start devising back-end rules 
like you are talking about with the resolution authority, that 
tends to affect the availability and cost of credit.
    To the extent that rules are not transparent, to the extent 
that they are uncertain, to the extent that they are unfair, 
what that does is it tends to make lenders more reticent about 
extending credit or doing so, if they do so at all, at much 
higher prices.
    And we have seen many, many companies avoid bankruptcy 
because they were able to get credit. They were able to get 
credit at affordable rates. They were able to address short-
term needs. They were able to reorganize.
    And one of the things that we really would hate to see in a 
resolution authority bill are rules that tend to discourage the 
availability of credit or to increase the price of credit 
because we are afraid that what that might do is to increase 
the systemic risk that you are all trying to avoid.
    Now, what is it about the resolution authority discussions 
today that raise these issues as transparency, certainty and 
fairness? One is if there is going to be a system where there 
are too-big-to-fail companies that get identified, that should 
be transparent.
    It should be apparent for extenders of credit to know in 
advance when they are thinking of extending credit whether 
someone is going to be on the list and, if so, whether they are 
going to be subject to this entire scheme.
    To the extent that they don't know that, then they are 
going to have to make their credit decisions based on that lack 
of transparency, and that is going to increase the cost of 
credit or probably decrease its availability.
    We also are looking at certainty. How can these rules 
create certainty? And one of the things that is of concern is 
what happens when the Federal agency comes in and it rescues an 
organization that is too big to fail. It might find a buyer. It 
might create some sort of a bridge entity.
    But it would take the core systemic risk assets, as we 
understand them, and put them somewhere else--in a buyer, in a 
bridge entity. And then there would need to be at that 
particular point some claims resolution process. There would 
have to be a way of dealing with the assets that are left 
behind and the unassumed liabilities.
    And those rules are going to have to be very certain. And 
we think that the bankruptcy rules are actually in much better 
shape right now to deal with the assets that are left behind 
than the proposed FDIC rules, which we don't think are as well 
known, or as developed or as detailed as what you see in 
    And then we think the process has to be a fair process. If 
creditors are concerned that the process is unfair, once again 
they are going to be reluctant to extend credit or to do so--if 
they do so, they would do so at a higher price.
    We think, once again, the bankruptcy rules for dealing with 
the assets and unassumed liabilities that are left behind are 
much fairer to deal with that, not only just because they are 
more well known and well developed and more detailed, but also 
there are open proceedings. People get judicial review. The 
standards for review are much tighter than would be in the case 
of an administrative proceeding.
    And then as a matter of fairness, we have a rule in the 
bankruptcy code that says where you have a Chapter 11 plan and 
one creditor would be worse off under the plan than it would be 
on liquidation, that plan cannot be confirmed. And that was 
done out of fairness, with constitutional implications.
    There should be a similar rule here. If a creditor would 
get less under these rules that you are devising now--the 
creditor should be no worse off than it would be if the entity 
were liquidated, as a matter of fairness.
    Thank you, gentlemen.
    [The prepared statement of Mr. Smith follows:]
                  Prepared Statement of Edwin E. Smith


    Mr. Johnson. Thank you, Mr. Smith.
    Now we will hear from Mr. Rosenthal.


    Mr. Rosenthal. I will try to use--let me try to use this 
microphone. It seems to be better.
    Chairman Johnson, other Members of the Subcommittee, thank 
you for inviting me to testify today. I have spent 30 years in 
my legal career focusing on representation of financially 
distressed debtors and their creditors in a wide variety of 
    I believe that in addition to crafting a resolution regime 
that assures that there is no institution that is too big to 
fail, there should be two overarching goals of the legislation.
    The first relates to flexibility. We need to give the 
government the ability to act quickly to construct solutions to 
problems with these companies.
    The second, though, relates to predictability. Market 
stability requires predictable results. And if creditors are 
unable to rely on the predictability of expected returns, they 
may either restrict credit extensions, as Mr. Smith said, or 
extract excessively high risk premiums.
    While reform is clearly complicated, I firmly believe the 
foundation for reform should be the simple principle that 
absent compelling public policy reasons to the contrary, we 
should base a new system as much as possible on what market 
participants know, understand and have relied on.
    The new system must accomplish the goal of managing or 
restoring market stability, but do so in a way that does as 
little violence as possible to creditor expectations.
    Congress essentially has two existing regimes to choose 
from, the FDIA, which is used to resolve bank failures, and the 
bankruptcy code, which is used to resolve virtually all other 
business failures.
    The proposed legislation draws primarily from the FDIA but, 
in my view, could benefit significantly from the adoption of 
more features of the bankruptcy code.
    In part, this is because the bankruptcy code's concepts, 
including those that govern the judicial review of creditor 
claims, work better in the face of a system-shaking failure of 
a non-bank entity.
    And in part, this is because creditors of these companies 
understand and have structured and priced their transactions on 
their expectations about the application and the predictability 
of the bankruptcy code.
    The revisions to the legislation that I have proposed, 
taken together, create a hybrid between the FDIA and the 
bankruptcy code. They marry the bankruptcy code's basic 
creditor protections, including judicial review, transparency, 
predictability, with the FDIA's flexibility to address quickly 
the systemic repercussions of the failure of a significant 
financial entity.
    There are two distinct phases of a covered financial 
company's collapse which must be addressed by the legislation. 
The first is the initial phase, which is the crisis, where the 
FDIC must be given flexibility and discretion to act quickly 
and decisively to avert the crisis.
    We have proposed that during this 30-or-so-day-period, 
short period, the FDIC could act without contemporaneous 
oversight by a court. But after the financial crisis has been 
averted, a second phase of the process begins. During this 
second phase, the FDIC must administer the underlying 
liquidation of the failed entity, including resolution of any 
disputes with creditors.
    We have proposed that the FDIC's actions during this second 
phase would be subject to the oversight of the bankruptcy 
court. The bankruptcy court would apply the same procedures, 
precedents and adjudicative process that it employs every 
single day and that market participants already know, 
understand, rely on and expect.
    Time doesn't permit a discussion of the other specific 
changes that I have recommended, but they are summarized in my 
testimony and its--and its attachments.
    These changes include incorporation of the bankruptcy 
code's concepts regarding claim determinations, preference in 
fraudulent conveyances, contract rejections, reporting, 
valuation and treatment of secured claims.
    While you might ultimately enact a resolution system that 
is more administrative in nature than I have outlined, I 
encourage you even then to implement as many of the 
recommendations as possible to minimize the disruption to 
creditors' expectations.
    I commend the Committee for taking the time to consider 
this important topic and, again, appreciate the opportunity to 
speak with you today.
    [The prepared statement of Mr. Rosenthal follows:]
               Prepared Statement of Michael A. Rosenthal

                              ATTACHMENT 1

                              ATTACHMENT 2


    Mr. Johnson. Thank you, Mr. Rosenthal.
    And last, but not least, Professor Calomiris?


    Mr. Calomiris. Thank you, Mr. Chairman, distinguished 
Members. It is a pleasure to appear here today.
    I am going to address briefly in my oral comments two 
issues--the best way to reform laws and regulations governing 
the resolution of large, complex, non-bank financial 
institutions, and secondly, some antitrust issues related to 
the approval of bank mergers.
    With respect to the first, I want to focus a bit on the 
decision-making process in reality that produces bailouts. 
Experience has shown that political risk aversion favors 
bailouts even when they are not necessary and is too generous 
in the bailouts when they are performed.
    Which regulator will be willing to risk a systemic meltdown 
on their watch and face the potential political backlash that 
would accompany it if they have ready-made taxpayer funds that 
they can pay out instead?
    Creditors of failing non-bank financial institutions are 
aware of policy-makers' risk aversion, demonstrated by the 
series of bailouts beginning in 1984, with what is now widely 
regarded as a political and regulatory overreaction to the 
failure of Continental Bank, the first example of the 
application of the too-big-to-fail doctrine.
    Creditors use that risk aversion to exaggerate their own 
vulnerability to shocks and to obtain more generous protection 
from taxpayers.
    A Washington Post article that came out today, written 
after my testimony, has the following quote in it in discussing 
the AIG bailout and why creditors received no haircuts in the 
AIG bailout.
    Quote--this is a quote from the New York Fed's general 
counsel, who was part of the negotiation--"In its negotiations 
with its counterparties, AIG just didn't have the same 
bargaining power that it did with the Federal Reserve standing 
in the background. The only sensible outcome was to give them 
what they were legally entitled to.'' In other words, zero 
    I would be happy to talk with you more about that. But what 
the general counsel of the New York Fed is saying is when the 
Fed is involved, we are just not tough negotiators. And I think 
that is exactly what happened in the AIG bailout.
    Bailouts, as most recently illustrated by AIG's experience, 
keep counterparties and creditors whole because there is no 
way, short of bankruptcy, under current law to force them to 
bear a loss.
    In other words, the game of chicken between government 
agencies and creditors is one that the government is likely to 
lose, as they did with AIG's creditors, when trying to convince 
creditors to share in losses, which means taxpayers end up 
bearing all the loss.
    Now, there is broad consensus that this status quo is not 
acceptable, and we all understand it is not going to be changed 
just by bold statements. Reform must create a means to transfer 
the control of assets and operations of a failed institution in 
an orderly way while ensuring that shareholders and creditors 
of the failing firm suffer large losses.
    Those outcomes are essential if the resolution of failure 
is to avoid significant disruptions to third parties and also 
avoid bailout costs to taxpayers accompanying the--the bailout.
    Two approaches have been suggested--one, bankruptcy 
reforms, and two, the creation of an administrative resolution 
    Critics of creating an administrative resolution authority 
rightly argue that placing discretionary authority over 
resolution in a regulator is likely to institutionalize 
generous, too-big-to-fail protection, just as I have argued it 
    But despite the arguments that I believe favor bankruptcy 
reform as an approach, it is not clear whether the government 
can credibly pursue a pure bankruptcy approach even if doing so 
were economically desirable.
    The problem is a political one. An economically defensible 
tough-love bankruptcy system might encourage, for reasons 
associated with political risk aversion, ad-hoc resolutions to 
occur outside the reform bankruptcy process, just like AIG.
    And for that reason, I believe it would be desirable to 
establish a hybrid bankruptcy resolution approach which 
predefines and thereby constrains the way administrative 
resolution would occur.
    I am part of a bipartisan task force put together by the 
Pew Trusts, which is about to release a report, a large part of 
which has to do with how to structure such a bipartisan 
compromise that would create this hybrid resolution. And I will 
be happy to discuss it more. It is referenced a bit in my 
    I know I am running out of time. I want to focus briefly on 
what to do about antitrust. In my testimony, I describe my own 
experience as an advisor to the attorneys general of 
Massachusetts and Connecticut and the problem there with the 
politicization of the antitrust process in the case of the 
Fleet-BankBoston merger.
    My conclusion from that is that we need to have undivided 
authority vested in the Justice Department Antitrust Division, 
and it needs to have budgetary autonomy. The Fed needs to get 
out of the process, and we need to make sure that the Justice 
Department is politically protected. Thank you very much.
    [The prepared statement of Mr. Calomiris follows:]
               Prepared Statement of Charles W. Calomiris


    Mr. Johnson. Thank you.
    Professor Sagers, proponents of the bill have argued that 
this bill has essentially the same limitations on antitrust as 
the FDIA, and wanted to ask you, since we are now in the 
questioning period and all Members will abide by the 5-minute 
rule, is that accurate?
    Mr. Sagers. Yes, in one important respect it is incorrect. 
As I explain in my written statement, it is a very complicated 
question, but a simple answer is that the claim that the bill 
does not modify current antitrust review--that claim is 
incorrect for the simple reason that under current law 
transfers of banking assets--"banking assets"--are subject to a 
special regime of antitrust review which is undertaken by both 
the banking agencies and the Justice Department jointly.
    And in some respects it is a little bit different than the 
more familiar merger review process under the Hart-Scott-Rodino 
Act and sometimes it can be made to go a little bit faster than 
HSR review.
    However, where non-banking assets are transferred in almost 
all cases, including some securities and insurance businesses, 
other financial businesses--when those transactions occur, the 
ordinary Hart-Scott-Rodino process applies.
    And importantly, when the Justice Department or the Federal 
Trade Commission reviews a transaction, reviews a transfer of 
non-banking assets, they have a lot of power. They have a lot 
of essentially civil discovery power to force the merging 
parties to disclose information. They can also request 
information from third parties.
    And I believe, most importantly, they can essentially force 
the merger--force the transaction to slow down so that they can 
take the time they feel they need to address anticompetitive 
concerns. Okay.
    So that is the piece that would be changed under bill under 
the resolution authority where FDIC causes the sale of some 
non-banking asset that is owned by a failing financial company 
in receivership.
    That transaction would be subject to HSR, except that the 
agencies would not be permitted to make the so-called second 
request for more information, which has the result of both 
giving them more information and slowing the process down.
    As I explained, I happen to think that is really a pretty 
big deal. It is a pretty big change, because in effect the 
agencies are going to be forced to review what could be very 
large mergers or acquisitions in 30 calendar days, with 
probably quite limited information.
    Mr. Johnson. Thank you.
    I would like to ask everyone on the panel to respond to 
this question, starting with Professor Calomiris. Does the 
resolution authority have the effect of institutionalizing too-
big-to-fail companies as part of the economy? And is this a 
    Mr. Calomiris. It all depends, Mr. Chairman, on how it is 
structured. If it is a backstop protection, as I am proposing, 
and, crucially, if there is a requirement of minimal haircuts 
to creditors and, furthermore, if triggering the use of the 
resolution authority has to be approved by Congress and, 
finally, if the large financial institutions that presumably 
benefit from this protection have to pay for it after the 
protections applied, so it is not the taxpayers paying for it 
but the financial system, then I think we can say it doesn't 
institutionalize too big to fail.
    But if you don't add all those caveats, you will 
institutionalize too big to fail.
    Mr. Johnson. Thank you.
    Mr. Rosenthal?
    Mr. Rosenthal. Yes. I believe it does not institutionalize 
too big to fail but, again, subject to the statements that I 
made before, that we need to layer onto what is already--what 
has already been proposed bankruptcy code concepts that impose 
judicial restraint in some instances, that impose factors that 
limit the ability of the regulator to go too far and that 
subject companies to restrictions that they and their creditors 
agree to.
    Mr. Smith. Let me try this one. Thank you, Mr. Chairman. I 
also agree that this should not institutionalize too big to 
fail, especially if creditors and shareholders will be 
suffering a loss as part of the process.
    The only caveat I have relates to what happens when you 
have a business that, at its core, relates to systemic risk and 
where it may be necessary to transfer the assets of that 
business with certain liabilities being assumed.
    Now, if you are one of the creditors who is extending 
credit to one of the businesses that does not fall into that 
category, you know that you are going to suffer a loss even if 
the business is too big to fail.
    But if you are one of those creditors who is extending 
credit to the part of the business that is a core systemic risk 
asset, I think there needs to be a lot of thought given as to 
whether that creditor's claim is going to be assumed in its 
entirety as part of the rescue process and, if so, whether 
there is an element of institutionalizing the too big to fail 
scheme for that creditor that needs to be taken into account.
    So I would suggest caution in that area. But as a general 
matter, this is legislation that one hopes would never be 
invoked in the future.
    Mr. Johnson. Yes. Thank you, Mr. Smith.
    And, Professor Sagers?
    Mr. Sagers. Thank you. I really would just repeat what 
Professor Calomiris said. It seems to me the question really 
depends on how the act is administered.
    The act seems to me to give one agency an extraordinary 
amount of flexibility and its administration, it seems to me, 
is going to be subject to some degree to changing political 
forces, depending on changes in Administrations.
    I would add that I think that problem, like other problems, 
could be improved under this act if it is--if it strengthens 
antitrust review under Hart-Scott-Rodino Act.
    Mr. Johnson. All right. Thank you, gentlemen. My time has 
    I will now proceed to Mr. Chaffetz for questions.
    Mr. Chaffetz. Thank you, Chairman.
    I would ask, actually, unanimous consent to insert into the 
record, if I could, a statement from the Ranking Member of the 
overall Judiciary Committee, Member Lamar Smith. If I could 
insert those into the record----
    Mr. Johnson. Without objection.
    [The prepared statement of Mr. Smith follows:]
 Prepared Statement of the Honorable Lamar Smith, a Representative in 
Congress from the State of Texas, and Ranking Member, Committee on the 


    Mr. Chaffetz. Thank you, Mr. Chairman.
    I want to go back to you, Mr.--Professor Calomiris--am I 
pronouncing your name properly? I hope so. Okay.
    Mr. Calomiris. Calomiris, yes.
    Mr. Chaffetz. Yes. Are you familiar with H.R. 3310 and what 
that uses as the foundation for reform in the bankruptcy code? 
Could you talk specifically to that and your impression of 
    Mr. Calomiris. Yes. I have reviewed it. I couldn't recite 
every part of it to you from memory, but I liked it. But I 
don't think it goes far enough. I mentioned three things in my 
testimony that I think would be additional reforms to the 
bankruptcy process, especially as applied to a new--let's call 
it Chapter 14--applied to non-bank financial institutions.
    And so I could go over those. One of them has to do with 
dealing with voting problems that have emerged in the recent 
CIT bankruptcy case.
    So we have to worry now about creditors who have offsetting 
hedged positions or maybe even over-hedged positions so that 
they have an incentive in disrupting the bankruptcy process. So 
you might want to change the law so that your net position 
determines your voting power, not your gross position as a 
    That is just one example, and that is not just for 
financial institutions. We need to be worrying about that more 
    We also have to worry about the problem of international 
coordination. And it is not good enough just to say let's worry 
about it. We actually have to figure out a way over a short 
period of time that we can figure out where assets are going to 
    A big problem in the Lehman bankruptcy was that a lot of 
assets came back overnight. Nobody knew, are they part of the 
New York jurisdiction or are they going back to other 
    You have to have as part of the living will that is being 
proposed--and I support that idea--cooperation, pre-agreement 
among regulators in advance, as to how they are going to figure 
out where assets and liabilities reside if the bankruptcy 
    And I had another point, but I will stop there talking.
    Mr. Chaffetz. Okay.
    Mr. Rosenthal, I want to give you a moment here to expand 
on this idea of flexibility but predictability and how those 
two are able to balance in such a way to achieve what we are 
trying to achieve. Can you----
    Mr. Rosenthal. Yes, and actually, interestingly, the way we 
have tried to come up with the hybrid approach could be 
implemented through a new regime, or it could also be 
implemented through a revision to the bankruptcy code.
    What we have envisioned here to get flexibility is have a 
period of time--call it an exclusive period, a crisis period--
where the FDIC--whatever the regulatory agency is--takes over 
the business, does what it has to do in terms of selling it 
to--or transferring it, or capitalizing it to avert a financial 
crisis, without supervision of a court, which enables the 
action to be taken quicker, doesn't require all of the notice 
of the bankruptcy proceeding. That is the flexibility.
    But then you come to the point of how is the rest of the 
case going to continue, and is there any judicial supervision 
or oversight, even on an after-the-fact basis, of the actions 
that were taken during the exclusive period.
    So the way that we have built in the predictability is to 
say that all of the things that would occur after this initial 
period are effectively managed and run and supervised the same 
way they would be under the bankruptcy code--bankruptcy court 
is there, bankruptcy court looks at the thing.
    And even the actions that were taken during that initial 
period could be brought forward later before the bankruptcy 
court if a creditor was able to demonstrate that as a result of 
the actions that were taken it is in a worse position down the 
road than it was in on day one if the actions had not been 
    Mr. Chaffetz. Okay. Thank you.
    Sorry, time is so short. Going back to Mr. Calomiris, if I 
could, please, let's talk a little bit about the case study 
that is first and foremost on a lot of people's mind, which is 
    I just want to give you a moment to further expand on that 
thought, and know that we probably have less than a minute here 
before my time expires.
    Mr. Calomiris. Well, I think the really important lesson 
from the combination of AIG and Lehman was, first of all, that 
a big part of the problem with Lehman, which was related to--
they all happened simultaneously--was the anticipation of 
    And Lehman would have gone to the market in March of 2008 
and raised capital after the Bear Stearns failure if it didn't 
expect to be protected. That is the big lesson. We don't want 
to have that expectation.
    And then AIG proved it. Even though Lehman didn't get 
protected, that was a mistake that--you know, many people 
regard as a mistake. I don't, but the problem is now people do 
regard that as a mistake, and the solution to it is going to 
look--unless we have very hard language that prevents it, it is 
going to look a lot like AIG.
    AIG's UBS counterparty was willing to take a 2 percent 
haircut. That was very, very big of them--willing to take a 2 
percent haircut on their positions. Nobody else was.
    And the Fed spent, as far as I can tell, about 30 seconds 
negotiating with them and then decided to tell UBS they didn't 
even have to take the 2 percent haircut they offered because 
they decided it was simpler for them just to make a one-size-
fits-all, nobody takes a haircut.
    That sent a hugely bad message to creditors in the future. 
It was unnecessary. But what I want to emphasize is not that, 
you know, Tim Geithner was a bad guy because he did that. What 
I want to emphasize is he wasn't playing with his money. He was 
playing with mine and yours.
    And he is not a very tough negotiator because as a 
regulator his incentives will always be to do that. That is 
what we need to be worried about if we empower discretionary 
authority outside of bankruptcy.
    Now, some people on the panel here have talked about the 
need to protect creditors' rights. I understand that, and I 
favor reform of the bankruptcy code as the dominant way to do 
    But I also worry about protecting taxpayers' rights.
    Mr. Chaffetz. Thank you.
    Thank you, Mr. Chairman. I appreciate your indulgence in 
allowing us to go over time a little bit. Thank you.
    Mr. Johnson. Certainly. Thank you, Mr. Chaffetz.
    Now I recognize the esteemed gentleman from Michigan, the 
Chair of the Judiciary Committee, the honorable John Conyers.
    Mr. Conyers. Thank you.
    One of the problems is that the Finance Committee is 
marking up their bill right now, and I keep thinking about the 
barn door syndrome here. And I am trying to figure out what 
this Committee--this part of Judiciary can do about it and 
what--when I meet with Chairman Frank that we want to keep 
working on.
    So at the same time that I am omitting the fact that we 
should have really held this part of the hearing before them so 
that they got an idea--their frame of reference is fixed. All 
this good testimony they may look at some day after it.
    I see that bankruptcy is being minimized in this regulatory 
finance package. I see that we are going to have a situation 
where we may be sorry about not being strong enough.
    I am impressed with the witnesses here who I hear telling 
me that it is more than about patching up the system, it is 
the--it is to put in safeguards so that this won't happen 
    You can patch it up--and this isn't the first time we have 
been to the brink either. All of you know better than we--we 
can create a remedy, a regulatory remedy, that still makes the 
same thing that doesn't limit the possibility of this happening 
    So the question that I have for you four is what more can 
we do, and of course, I don't ever stop--we are not going to 
stop just because they are marking up their bill. There is 
going to be lots of negotiations. Only heaven knows what the 
other body is going to produce.
    There will be a rules committee where lights frequently go 
out. There will be a conference committee. So I want you to 
tell me what we ought to do, because we haven't mentioned 
Glass-Steagall and the little sorry Bliley effort that 
succeeded it.
    I mean, I am not comfortable about this, and I want you to 
give me not only your best advice here today, but I would like 
the honor of us being in touch as this moves down the road.
    This isn't going to happen before next year. I know there 
is great intentions for moving with swiftness.
    Sagers and Calomiris, why don't you start off this 
    I ask unanimous consent for a little more time, Mr. 
    Mr. Johnson. Without objection.
    Mr. Sagers. Yes. Thank you, Mr. Chairman. I hate to be a 
one-trick pony, and I also sort of hate to say this, because I 
really don't know how controversial this sort of thing might be 
to say.
    I take heart that if I understand him, Professor Calomiris 
said something similar. I personally think that the regime of 
bank merger law we have right now needs to be reopened, and I 
would favor getting rid of it.
    To the extent that it ever had a justification, it is now a 
very strained justification that I think many people don't find 
very persuasive, and bank mergers could take place under the 
ordinary Hart-Scott-Rodino Act.
    That leaves open the large problem, though, that as the 
Justice Department and the banking agencies have interpreted 
their duties under bank merger law--that is, as they have 
understood their substantive job in reviewing bank mergers, 
which undoubtedly would--they would carry over.
    I mean, if you do away with bank merger law and say 
everything is subject to Hart-Scott-Rodino, the same 
theoretical approach that has been applied under bank merger 
law would continue to be applied under Hart-Scott-Rodino, 
unless Congress were to take some action to correct that.
    And the problem is traditionally both the banking 
regulators and the Justice Department for a long time have 
believed--and in their defense, they believe it on the basis of 
a fair amount of empirical evidence--they believe that, by and 
large, competition issues relevant to Section 7 just aren't 
very serious in these markets.
    That is, the only cases in which we have serious 
competition issues are in local markets serving consumers, 
mainly, the sort of retail lending needs of consumers and small 
businesses. Everything else we can take to be presumptively 
highly competitive and therefore those mergers don't raise any 
    I am not really prepared to offer ideas on how that should 
be corrected, but I think that it is mistaken even in the 
traditional respect--that is, it is mistaken even in its 
assumptions about whether particular banking markets are 
    But also, let me just reemphasize--this is a bit of a pie 
in the sky sort of argument that academics get to make and 
nobody else does because they are difficult, I guess. But we 
don't have any laws, really, that directly deal with the 
problem of systemic risk being increased by mergers and 
    When companies get together and get bigger, thereby 
increasing systemic risk, to my knowledge there is no really 
effective regime other than Clayton Act Section 7 to address 
that, and Clayton Act Section 7 hasn't been used in that way.
    Mr. Conyers. But banks are exempted under Hart.
    Mr. Sagers. That is true.
    Mr. Conyers. You haven't mentioned that. I mean, you keep 
relying on it, but they have got a hole as big as a tank to 
drive through Hart-Scott-Rodino.
    Mr. Sagers. Yes, and my suggestion would be issue number 
one ought to be closing that loophole. Technically, bank 
mergers are subject to this--a substantive standard, a legal 
substantive standard very similar to the one that is applied 
under Clayton Act Section 7.
    Mr. Conyers. Well, technically, but it doesn't happen in 
real time.
    Professor Calomiris?
    Mr. Calomiris. Yes. I agree with you about the loophole. 
The way I experienced it, which I described in my testimony, 
was that I was working for the attorneys general of 
Massachusetts and Connecticut.
    And I showed them in my study--I predicted that if they 
allowed Fleet and BankBoston to merge, middle market borrowers, 
meaning the backbone firms, small businesses and middle-market 
businesses in the U.S.--would experience an increase of a full 
1 percent on their loans' cost if they did, and that that is 
who was complaining about the merger.
    It wasn't hidden. Those were the people complaining, and 
those were the people who were going to suffer. After the 
merger happened, it went up exactly 1 percent. So it wasn't 
rocket science. It wasn't difficult to see.
    What was lacking was the political will, because the 
problem is mergers create a lot of cookies, and people like 
cookies, and they come, frankly, to Congress and they ask 
people to help them get some of the cookies.
    And then in this case the Antitrust Division of the Justice 
Department was leaned on by a Member of Congress, who said, 
``If you guys fight this, it is going to hurt you in your 
budget for antitrust.''
    And it was a very embarrassing thing for the Antitrust 
Division, because I am on the phone with them 1 day, and they 
are ready, gung-ho, an the next day they say, ``We are not 
gung-ho anymore.'' And that is why I emphasize--I am not a 
lawyer but I am an economist, so I emphasize budgetary 
independence. If you are serious about this, that is what it is 
going to take, because that is where--what I saw.
    Now, I want to say another----
    Mr. Conyers. Now, what is this piece of history--how does 
this tie into the regulatory reform act that is being--is on 
the stove being cooked up right now?
    Mr. Calomiris. It should be added in, and I don't see it.
    Mr. Conyers. What should be added in?
    Mr. Calomiris. The kind of reform that, in my view, would 
take away from the Fed and place in the Antitrust Division 
undivided authority and budgetary autonomy to strengthen 
protection for all the various consumers, including businesses 
and small businesses.
    And I think, really, the biggest concern right now--I think 
Professor Sagers agreed with me, or someone did--is these 
middle-sized businesses which in many parts of the country are 
not getting served. You need to have a couple, at least, or 
three or four large banks in every location to be able to have 
real competition for middle market lending, and we don't have 
    Mr. Conyers. Mr. Rosenthal, how do you weigh in on this 
    Mr. Rosenthal. Mr. Chairman, first, I think this issue is 
not going to go away. If you are lucky enough that it 
disappears in the rules committee, maybe, but I think we have a 
problem that needs a resolution.
    We have the bankruptcy code that deals with the rights of 
creditors. We have the FDIA that deals with the rights of 
depositors. Neither one of those deal with systemic risk.
    So I think if you want to be--if you want to be productive 
and you do not think that you can overcome the majority with 
respect to a bill that takes power out of the bankruptcy code 
and creates a new resolution authority, then you have to make 
proposals that build in the protections that we have been 
talking about.
    So for example, we have--and we would love to talk to you 
about it further--I have done some summaries of changes that 
would be inserted into this bill that would, in fact, provide 
the protections--a number of the protections that Mr. Smith and 
I at least talked about in terms of judicial----
    Mr. Conyers. For example?
    Mr. Rosenthal [continuing]. Review, claims determination. 
For example, a provision that would require judicial review, 
that would, in effect, make the bankruptcy court the arbiter of 
decisions from--you know, after this exclusive period that I 
was talking about.
    A provision that would require that claims determinations 
first be the subject of a negotiation between the FDIC, but if 
they could not reach a resolution then you would do what we do 
in the bankruptcy code--court all the time. You would go to the 
bankruptcy court and you would say, ``Bankruptcy court, decide 
how this--decide this claim. What is the amount of the claim?"
    Issues about valuation--clearly, secured creditors bargain 
for collateral to support their obligations.
    The bill deals somewhat with the rights of secured 
creditors, but it doesn't say how you would value their claims. 
We would build in--we think you should build in provisions that 
if you can't agree with the regulatory authority about the 
value of the secured claim, you go to the bankruptcy court.
    Mr. Conyers. Can the rest of our witnesses buy into that 
    Mr. Smith. I certainly can. This was, indeed, part of my 
testimony on behalf of the National Bankruptcy Conference. But 
I do want to add something in terms of the broader perspective 
that you are raising, Mr. Conyers. You were saying how can this 
legislation be devised so that what happened doesn't happen 
    And looking at this purely from the bankruptcy standpoint 
is almost like asking an undertaker what he could have done to 
have prevented the death of the deceased. The bankruptcy is the 
back-end side of things.
    And there is an important element that Mr. Rosenthal has 
mentioned, which is you want to have transparent, clear, fair 
rules for creditors to ensure predictability so that the market 
starts to adjust for true credit risk and does not take into 
account the fact that there are no consequences for creditors 
who make bad credit decisions, as Professor Calomiris had 
    But even beyond that, part of this bill has to be 
prudential regulation at the outset, maybe in the area of 
antitrust that was just discussed, but maybe broader regulation 
as well, so that there are limits on some of the risk-taking 
that can be made in this economy. Thank you.
    Mr. Calomiris. I want to give a hopeful note here and tell 
you that in about 2 days the Pew Trusts bipartisan task force 
on financial reform is going to release a report. I am a member 
of that.
    It is a bipartisan group. Democrats who are members of that 
include Alice Rivlin, former vice governor of the Fed; Alan 
Blinder, also former vice governor of the Fed; Bob Litan; 
Rodgin Cohen, Sullivan & Cromwell; Morris Goldstein.
    We have about a dozen people, and we have reached 
consensus. We have a platform. It is not identical to the Frank 
bill. It is not identical to the Dodd bill. It does share a lot 
in common with them. There are good ideas in those bills. But 
the details are not often very good.
    Intellectually, what you are seeing here today, I think, is 
a lot of consensus across the aisle, and what is really 
interesting is I have lived through that for the past 6 months 
in the Pew task force.
    I think if Congress would just slow down on both sides of--
both houses, and just listen to that bipartisan consensus, you 
could do a lot better than either of those bills. And I think 
the problem is the devil is in the details, and he really is in 
those details right now. We need to fix those.
    Mr. Conyers. Yes, we will be looking forward to the Pew 
    And I thank you for the time, Mr. Chairman. Could I just 
close with one--let me just ask you, we have got some strong 
personalities involved in this legislation--Dodd, Frank, 
Shelby--and I wish Stiglitz could have been here to join you to 
make it five instead of four.
    How do you separate out what we have been talking about 
from what they seem to be advocating?
    Mr. Calomiris. I am willing to take a crack at it. I think 
that there are good things, as I said, in--I have talked to 
people on both sides of the aisle, and I am actually very 
hopeful. I think people can come together on a bipartisan 
consensus. I really do.
    I don't think that any of the positions and the differences 
are insurmountable. I think I don't want to speak out of school 
and mention particular lawmakers that I have talked to, but I 
am actually confident of it.
    I think the key, though, is don't rush it through. Give it 
a little bit of time. Instead of trying to get a bill done by 
February that is going to have to be done on an egotistical or 
partisan basis, give it till March or--and you will have a 
bipartisan one.
    Mr. Rosenthal. I would agree with that, and I will just 
point to one provision of the bill. If you look at the 
proposal--and this is in a number of the proposals--frankly, 
all of the proposals that have been introduced--you see one 
provision that says claim determinations are not subject to 
judicial review, and you see another proposal that says claim 
determinations are subject to judicial review.
    I think that highlights what Professor Calomiris has been 
saying, that you need to take the time to go through this 
legislation and, one, make it consistent and, two, make sure 
that it embodies characteristics that both guard against 
systemic risk, which I think everybody would agree is a 
problem, and that protect creditors' interests as well.
    Mr. Conyers. Well, look, the Chairman on the--in the other 
body has a seriously different view from the Chairman in this 
body. I am glad to have words of hope. And I mentioned Mr. 
Shelby. I know he doesn't--I don't say I know--I think he 
doesn't agree with either one of them.
    So let's work through this a little bit. None of them are 
saying what you have been saying about bankruptcy and how we we 
resolve--how we make Hart-Scott-Rodino more effective. Glass-
Steagall--that is like something out of the past. I am not sure 
how far memory goes back on these subjects.
    So I don't know where the optimism seems to be coming from. 
I just hope you are right, but it is not at all clear to me.
    So I thank you, Mr. Chairman, for your indulgence.
    Mr. Johnson. Thank you, Mr. Chairman.
    There is a call to have a second round of questions, so I 
will begin that second round with Mr. Chaffetz.
    Mr. Chaffetz. Thank you. I appreciate it, Mr. Chairman--
such an important subject.
    I want to just offer one kind of two-part question, and 
then if you can just kind of go down the line and--and address 
it, do you think that an extended period of legal uncertainty 
could actually undermine the availability of credit to 
businesses as we try to emerge from the current recession?
    And the second part of that is if you think that another 
meltdown hits before the legal uncertainty is cleared up, the 
legal uncertainty could actually impair our ability to control 
such a meltdown?
    I would appreciate your perspective on that. Just kind of 
left from right.
    Mr. Sagers. You know, thank you. I guess my immediate 
reaction is in studying this bill, and in studying a lot of 
related legal topics, that is precisely the kind of concern 
that is consistently--I am not saying it is true in this case, 
but it is consistently overstated with rhetorical purposes in 
mind--that is, with achieving certain consequences.
    I gather a person stating such an argument, at least during 
a period like this one, when policy reform is on the table, 
would be making that claim with the point of urging haste.
    I think that would be a mistake in this case, and I just 
want to sort of incorporate something Professor Calomiris said 
on this before. I think he said it well, and he is much more 
expert in it than I am. Thank you.
    Mr. Smith. Thank you. I come at this from a long history of 
law reform where I was advised very early on that one of the 
primary goals of law reform is to do no harm. And it is very 
easy to try to address a specific problem and find out that you 
are creating other problems that are totally unforeseen.
    I think there is a greater risk here in haste. It is true 
that a period of uncertainty will affect the availability of 
credit and will affect the cost of credit, but that problem 
could be compounded if the wrong legislation were enacted.
    Mr. Rosenthal. I would agree with that. I think that there 
is more problem--yes, I think there is--it is worse and you 
compound the problem to rush to judgment and implement 
legislation which itself may be very uncertain than whatever 
legal uncertainty currently exists.
    We have a system that does work to some extent. It may have 
some problems, but we know the system. We understand the 
system. Creditors understand the system. Businesses understand 
the system. Courts understand the system.
    Courts worked through Lehman, even though they had to work, 
you know, all night, day and night, for weeks. They worked 
through Lehman. They worked through G.M. They worked through 
Chrysler. And they did it quickly.
    So to me, you would delay a decision and come to a more 
reasoned decision than rush something through.
    Mr. Calomiris. I agree with what has been said by the other 
three. I would just point to a couple of things.
    When we had the clarification after September 2008 by FASB 
of how they--the regulations in terms of mark to market would 
be applied--that clarification was extremely helpful to the 
markets, because it told people that they didn't have to go 
into a death spiral of valuation based on some existing market 
price. That resolved a very big legal uncertainty about the 
appropriate way to apply that, and it was very helpful.
    I would also say that the stress tests resolved a 
regulatory enforcement uncertainty. More than they provided 
information about the condition of the banks, they really told 
us how the regulators were planning to behave toward the banks, 
and that was hugely beneficial.
    So what we know from just looking at the recent crisis is 
moments of regulatory enforcement uncertainty or rules 
uncertainty can be devastating.
    And I also agree with Mr. Rosenthal that actually aside 
from the issues associated with international coordination of 
which assets belong where, the Lehman bankruptcy actually gives 
us a fairly good feeling about the ability of the bankruptcy 
code to deal with things.
    So I look at it as we have workable problems. We have 
problems that we could actually deal with but that we need to 
focus on.
    Mr. Chaffetz. Yes, I yield to Mr. Goodlatte.
    Mr. Goodlatte. Yes, I wanted to follow up. Do you think 
that if they had made that clarification much earlier in this 
process that it would have had that same settling beneficial 
effect that you noted that it had when they finally got around 
to doing that late last fall?
    I mean, we here in the Congress struggled with this all 
through this crisis, and the votes we had on bailout bills and 
so on, saying that market to market was a significant 
contributor to the uncertainty and that addressing that early 
and quickly would have had a very salutary effect?
    Mr. Calomiris. Yes, I do.
    Mr. Goodlatte. Thank you.
    Mr. Chaffetz. And let me just say, Mr. Chairman, as I wrap 
up, I appreciate the kind of what I perceive as unanimous 
conclusion that it is most important to get it right rather 
than get it done fast, that there are unintended consequences 
of overreacting and reacting too quickly without understanding 
all of the ramifications.
    I think that is precisely the point that I would like to 
make, that there is a system that, by and large, works, that no 
doubt there needs to be reform, and we are trying to address 
    But, Mr. Chairman, we ought to be understanding--thoroughly 
understanding each and every act and consequence so that we 
don't misstep and create unintended consequences that we will 
suffer from for years to come. So thank you for your time.
    Mr. Johnson. Thank you, Congressman.
    I have got a couple of questions. In the case of a non-bank 
entity that is too big to fail, who--how would the process work 
under the bill that is being marked up now in Financial 
Services? How would this work?
    And I will say that when a bank is teetering on the brink 
of insolvency you would have, you know, some notices that would 
have gone out to the bank saying you need to do this, or you 
need to do that, and then after a period of time then the 
regulators would swoop in, I guess without notice, and take 
over the bank, and then find some entity that would purchase 
the bank.
    What would be the process of determining what entity is too 
big to fail, why--who would make that assessment, and--I will 
rest with that. And anyone who wants to answer that question is 
certainly welcome to.
    Mr. Smith. I will start off by saying that my understanding 
of how the too-big-to-fail institution would be identified 
would be--we will know it when we see it, if I understand it, 
that there are a number of different agencies that need to 
collaborate in the form of a council that would make that 
judgment, and the bill spells out the factors that need to be 
taken into consideration.
    But in the end of the day I would be curious whether the 
other panelists see things differently--it is a pure judgment 
made by the best authorities who could view the problem.
    Mr. Rosenthal. And, Mr. Chairman, if you--some of the 
attachments to my testimony reflect an overview of--and a 
comparative summary of how that decision gets made under the 
current bill.
    It is basically a recommendation by the FDIC, approved by 
the Secretary of the Treasury, in consultation with the 
President, and they have to make certain findings about that 
collapse would be--you know, would cause a systemic difficulty. 
That is the technical things that happen.
    The practical things that happen I think are a little 
different. We know how bank failures occur because we have a 
whole--a number of years of precedent about how banks are taken 
over. It is a little bit unclear how, as a practical matter, 
this would occur.
    But you would expect that it wouldn't be swooping in, you 
know, in--at midnight for companies that are this large and 
this significant, that there would be significant discussions 
between the FDIC or the Fed or--and others----
    Mr. Johnson. Including the target?
    Mr. Rosenthal. I would think so, because just as there was 
with Lehman, you know, just as there undoubtedly was with Bear, 
just as there has been with AIG, I think there would be 
discussions with the target company to see if there were ways 
to avert the problem short of declaring the company to be a 
systemically significant company and subjecting it to this 
resolution authority.
    But ultimately, if there were no other--there were no other 
solution, or if management of the company, for example, were 
unwilling to implement other solutions, then I could see these 
recommendations being made.
    Remember that in a bankruptcy, the way you get into 
bankruptcy is that the--either your creditors put you in 
through the filing of an involuntary or the company voluntarily 
files a bankruptcy case. There isn't a provision, at least in 
current law, for the FDIC or the Treasury or the United States 
to put a company into bankruptcy.
    What this new regime would do is say that there would be 
discussions--if the company wouldn't take the action that the 
government wanted, or there wasn't an action short of--you 
know, short of using this authority, that you could use this 
authority to resolve these companies and essentially depose 
    Mr. Calomiris. Under what I think is going to be reported 
on Friday by the Pew task force, it would work the following 
way--similar in some ways to the resolution authority in the 
two different bills right now, but I think the details are kind 
of important.
    First of all, let's say that on a particular day, Friday, a 
non--a large non-bank financial institution looks like it is in 
trouble, it is having problems. How do we know that? What would 
happen is it would have trouble finding counterparties to deal 
with it in the market.
    And then I would expect the President, in consultation with 
the Secretary of the Treasury, would decide whether he wanted 
to appeal to Congress to make this firm exempted from the 
bankruptcy. So now we can go in one of two ways.
    If the President decides not to, then what happens in 
bankruptcy? Under the Chapter 14 as I would see it reformed, 
the Fed would be able to do debtor-in-possession financing 
during a--some period of time while the bankruptcy court was 
able to take charge of the process.
    There are already QFCs. Certain contracts are exempted from 
a bankruptcy stay. It might make sense to change the rules a 
little bit to allow people who are willing--short-term 
contracts that are maturing to take large haircuts in exchange 
for also being exempted as QFCs are.
    There are lots of interesting details, because we don't 
want the financial system to freeze up because of the 
networking of claims that have to be traded. So there may be 
some reforms for the bankruptcy process--I didn't get through 
all of them--that are helpful in that.
    Then, or if we are not going to go in that direction, if 
the President thinks we need to have a resolution authority, it 
is going to now proceed in a way where the creditors know that 
by law they cannot be made whole because, for example, under 
the Dodd bill--the Dodd bill now says there has to be a minimal 
    Unfortunately, it gives a loophole that says that unless 
the FDIC decides there is a systemic problem they can waive 
that. So there are lots of problems. I don't support that 
    But if they did proceed that way, creditors would know that 
either way they are going to have a loss. That would be very 
beneficial. And I would predict that the resolution authority--
the regulator--would end up imposing the legally mandated 
minimum loss. They are not going to be aggressive enough.
    And so it is--if you put in that minimum loss, then they 
will be imposed. And if you don't put it in, it won't be 
    Mr. Johnson. Let me ask this question. Assuming a target 
has been in negotiations with the resolution authority, but 
then decides that it is in its best interest to file a Chapter 
11 petition, which I suppose has an automatic stay feature--
okay--would the resolution authority under the current bills 
being considered have authority to trump the bankruptcy court?
    Mr. Rosenthal. Yes. What happens is that the--if resolution 
authority is exercised, then that company becomes ineligible to 
be a debtor in a Chapter 11 case. So it effectively trumps the 
bankruptcy code.
    Mr. Johnson. All right. I have no further questions.
    Next, Mr. Chairman, anything further?
    I will say that the--we may as well bring this to a close. 
I do appreciate you all's appearance before us today and I 
would like to thank you for your testimony.
    Without objection, Members will have 5 legislative days to 
submit any additional written questions which we will forward 
to the witnesses and ask that you answer as promptly as you 
can, to be made a part of the record.
    Without objection, the record will be kept open for 5 
legislative days for the submission of any other--any 
additional materials.
    Today's hearing raised a number of important issues and 
certainly there--I don't know if February or March or April 
would be sufficient time to iron out all of the details.
    But as we consider this proposed legislation, we would do 
well to consider whether the absence of sufficient antitrust 
and judicial protections in emergency situations creates larger 
problems that it--than it seeks to solve.
    And with that, this hearing of the Subcommittee on Courts 
and Competition Policy is adjourned.
    [Whereupon, at 2:34 p.m., the Subcommittee was adjourned.]