OLA after Single Point of Entry: Has Anything Changed?

Abstract

This "white paper," written for the Roosevelt Institute, looks at the Dodd-Frank Orderly Liquidation Authority, as currently conceived of by regulators. The existence of OLA is crucial to the idea that the Dodd-Frank Act has actually ended "too big to fail." Since financial institutions remain very big, it is up to OLA to provide a means for them to fail. The real question is whether OLA will work and, as OLA was originally presented, there were good reasons for doubt.The FDIC has figured out a clever way to avoid the problems with OLA. Under the new "single point of entry" approach, only the holding company would be placed in OLA, and the FDIC would then continue to prop up the operating subsidiaries, wherever located. The new question is: Will single point of entry work?This short essay explores this question and what remains to be done to create a workable bankruptcy system for global banks. In short, I argue that while single point of entry is a great improvement, it still has its potential faults, and the excitement over it obscures many lingering questions. And nothing has been done to improve the ability of chapter 11 to handle a large financial institution, despite the fact that OLA is only supposed to "backstop" the normal bankruptcy process.