Volume 99 - Issue 6 Georgetown Law Journal

Regulatory Bankruptcy: How Bank Regulation Causes Fire Sales

Bankruptcy policy has long been founded upon the assumption that creditors seek to maximize the value of their assets. The radical changes that have swept the banking sector over the last two decades, however, have rendered this assumption unreliable. Banks, which are responsible for the majority of the outstanding credit in the United States, are no longer necessarily driven by value maximization. Instead, their behavior is increasingly influenced by financial regulation and regulatory policy, which lead them to drive their own borrowers into liquidation—a phenomenon that richly deserves to be called regulatory bankruptcy.

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