Bench Memos

Thomas Merrill on the Orderly Liquidation Authority

Columbia Law professor Thomas Merrill on the multi-state constitutional challenge to Dodd-Frank’s “orderly liquidation” authority:

The thorniest legal questions may be raised by authority for the orderly liquidation offinancial institutions — a crucial element and one intended to prevent more bank bailouts.

“I think there are some serious constitutional problems there,” says Thomas W. Merrill, a professor at Columbia Law School. “I think it could have easily been avoided.”

Under the law, the Treasury secretary may ask the U.S. District Court to authorize theappointment of the FDIC as receiver if the secretary determines that a company mustbe seized and liquidated in order to prevent harm to the broader financial system. Butthe statute, which constrains the court’s actions, may be problematic legally. The courtmust conduct a confidential hearing and make a decision within 24 hours. Also, the courtis limited in what it can consider: The statute permits the court to review Treasury’scontention that a firm is in financial distress but not the effect, on the rest of the financialsystem, of the firm’s failure.”

I think there’s lots of due process problems there, and I think there’s the problem ofstrong-arming the court into making a decision of this magnitude,” Merrill says.


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