Dodd-Frank's Title II Authority: A Disorderly Liquidation of Experience, Logic, and Due Process

By Welch, Chadwick | The William and Mary Bill of Rights Journal, March 2013 | Go to article overview

Dodd-Frank's Title II Authority: A Disorderly Liquidation of Experience, Logic, and Due Process


Welch, Chadwick, The William and Mary Bill of Rights Journal


INTRODUCTION

The Panic of 2008, as it is sometimes called,1 included the bankruptcy of Lehman Brothers, the infamous bailout of AIG, and the fire sale of Bear Stearns, all of which were punctuated with an overall economic slowdown and decline in the housing market.2 Net worth in the United States fell by fourteen trillion dollars.3 Many blamed the greed or negligence (or both) of corporate executives.4 Other causes were less tangible but equally apparent. For instance, financial markets had become global and interconnected, and financial products had become increasingly complex.5 These realizations, and the attendant erosion of confidence, prompted outcries for regulatory reforms.6

In response, President Barack Obama signed the Dodd Frank Wall Street Reform and Consumer Protection Act7 (Dodd-Frank) into law on July 2 1 , 20 1 0.8 Broadly speaking, Dodd-Frank's objectives were twofold: to regulate the shadow banking system, thereby reducing the risks inherent in contemporary finance, and to mitigate the effects caused by a failure of a large financial institution.9 Some market observers have noted that Dodd-Frank represents the most significant piece of financial regulation since the Great Depression.10

Dodd-Frank gives regulatory bodies sweeping new authority and directs the implementation of significant substantive reforms to the financial services industry.11 In particular, Dodd-Frank' s Title II, the Orderly Liquidation Authority (OLA) bestows upon the Federal Depositors Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve (Board of Governors) and the Secretary of the Treasury enormous power to place systemically important financial institutions in danger of collapse into receivership.12 This power has enormous implications for the executives and creditors of such institutions. With respect to the former, the OLA coerces corporate executives to submit to receivership rather than defend their corporation's interest in abbreviated, skewed, and secretive hearings.13 The OLA likewise affects creditors who may be caught off guard when one of its corporate debtors is placed into receivership, particularly because it is not entirely clear when the FDIC will subject a corporation to its power.14

To proponents of this sweeping new authority, the premise is simple: regulators must have the authority to take over and liquidate financial institutions when those institutions are so important that a collapse would result in widespread financial calamity.15 In the aftermath of 2008, where it had become apparent that financial institutions were so interconnected that the failure of one could mean the failure of all, this premise seemed justifiable. 16

But perhaps in implementation the OLA will exceed what is necessary and reasonable. The OLA provides alarmingly truncated procedures and constrained judicial review that raise legitimate due process concerns for the financial institution's executives and its creditors.17 Moreover, the regulators can invoke the OLA and place an institution in receivership in total secrecy; the public will not know of the action until liquidation has commenced.18 In practice, the constitutionality of this power is therefore in doubt.

Part I of this Note briefly recounts the events giving rise to Dodd-Frank and the justification for intervening in financial institutions deemed too big to fail. Part ? explains the salient provisions of the OLA. Part III examines the OLA in implementation and posits that, as written, Dodd-Frank raises serious questions of constitutionality under the First and Fifth Amendments. Part IV argues that pre-existing bankruptcy law can adequately deal with the problems the OLA was designed to address but without the attendant constitutional problems. It is important to point out at the outset that this Note purposely avoids delving into macroeconomic theory, and examines the OLA's theoretical effectiveness only when necessary to critique the legal grounds on which it purportedly rests. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Dodd-Frank's Title II Authority: A Disorderly Liquidation of Experience, Logic, and Due Process
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.