In April 2017, the US House of Representatives passed a bipartisan revision of the bankruptcy code, which would expedite the resolution of adequately structured intermediaries. This column considers the new Financial Institutions Bankruptcy Act of 2017 and how it fits in with the existing Dodd-Frank mechanism. By raising the odds of an effective resolution, the Act (as a complement to Dodd-Frank) boosts the credibility of the US regime. However, in the absence of an Orderly Liquidation Fund-like provision for temporary government funding, investors and foreign regulators will expect a future US government to re-introduce an ad hoc bailout mechanism when it is inevitably needed.
Boldface mine.
In the absence of a liquid set aside to cover short term needs in an abrupt bankruptcy. Sandbox fixes this when the secure elements are widespread, because then everyone can get even money on the defaults.
In the absence of the new money technology, the first in line when the default hits can avoid damage. Like central bank and member banks get first grab at insurance payout. With auto-trade cash we all expect defaults now and then, and we bet that way.
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