Post by Ori Sharon on Nov 21, 2013 4:01:17 GMT 4
The Bankruptcy-Law Safe Harbor for Derivatives: A Path-Dependence Analysis
Steven L. Schwarcz
Duke University - School of Law
Ori Sharon
Duke University - School of Law
November 12, 2013
Abstract:
U.S. bankruptcy law grants special rights and immunities to creditors in derivatives transactions, including virtually unlimited enforcement rights. This article argues that these rights and immunities result from a form of path dependence, a sequence of industry-lobbied legislative steps, each incremental and in turn serving as apparent justification for the next step, without a rigorous and systematic vetting of the consequences. Because the resulting “safe harbor” has not been fully vetted, its significance and utility should not be taken for granted; and thus regulators, legislators, and other policymakers — whether in the United States or abroad — should not automatically assume, based on its existence, that the safe harbor necessarily reflects the most appropriate treatment of derivatives transactions under bankruptcy and insolvency law or the treatment most likely to minimize systemic risk.
Number of Pages in PDF File: 27 papers.ssrn.com/sol3/papers.cfm?abstract_id=2351025