This book shows that a special bank bankruptcy regime is desirable for the efficient
restructuring and/or liquidation of distressed banks. We first explore in detail
the principal features of corporate bankruptcy law. Next, we examine specific characteristics
of banks including public confidence, negative externalities of bank
failures, opaqueness and the asset substitution problem, and liquidity provision.
These features distinguish banks from other corporations and are largely neglected
in corporate bankruptcy law. Other implications arise from the pressure of multiple
regulators. Finally, we make recommendations for necessary changes in both
prudential regulation and reorganization policies, which should allow regulators
and banking authorities to better mitigate disruptions in the financial system and
minimize the social costs of bank failures. We support our recommendations with
a discussion of bank failures from the 2007–2009 financial crisis.