bankruptcy fairness act

One great thing about a new Congress is that bills pending at the end of the prior Congress must be reintroduced. This wipes the slate clean of problematic proposals and reduces the risk of something slipping through without sufficient debate. For example, the proposed Bankruptcy Fairness Act of 2016 (BFA) expired with the 114th Congress. The BFA would have required the Office of Financial Research (OFR) to produce a biannual report to Congress regarding, among other things:

whether amendments to the Bankruptcy Code … and other laws relating to insolvency to modify the treatment of qualified financial contracts and master netting agreements in future situations of insolvency could reduce—

(i)         losses in the value of the financial company and its assets;

(ii)        losses to other parties in interest;

(iii)       moral hazard; and

(iv)       risks to financial stability in the United States.”

While such a report may seem innocuous, it might have provided a gateway for eliminating the safe harbors for qualified financial contracts (such as securities contracts, repurchase agreements and derivatives contracts) from the Bankruptcy Code and the Federal Deposit Insurance Act.
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