“At a Federal Reserve conference last week, I was once again contemplating orderly liquidation authority and how it has changed under the Federal Deposit Insurance Corporation’s “single point of entry” proposal, which would put the holding company of a failing financial giant into into receivership, but allow its operating subsidiaries to still operate.

“Much optimism was expressed at the conference that orderly liquidation authority will now or soon work wonderfully. Less optimism was expressed about Chapter 11 as a tool to resolve financial institutions, which starts of my list of things I’m still wondering about:

“First, what about the fact that the bankruptcy code is supposed to be the first line of defense? Indeed, under the Dodd-Frank Act, all the “too big to fail” entities are busy preparing resolution plans (otherwise known as living wills) that outline how they would be fair in a bankruptcy case. But little has been done to address a bankruptcy code that was seen as unable to handle American International Group in 2008.

“Second, those living wills are supposed to present a credible resolution plan under the bankruptcy code. I have heard from lots of law firms that bankruptcy partners have been heavily involved in the process. But what about the regulatory side? Best I know, the F.D.I.C. does not have a lot of in-house Chapter 11 experience. How are they determining that these plans represent a realistic bankruptcy approach?”

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