The Fed and How its Mid-Recession Actions Affected Post-Recession Corporate Restructuring

Commercial bankruptcy filings continue to languish at historically low levels, and are expected to do so at least until the Federal Reserve begins to raise interest rates. In the meantime, however, an article published in the June issue of the ABI Journal investigates the effect that the Fed's extremely accommodative post-recession monetary policy has had on corporate restructuring and credit markets in general.

In "Fed Policy Regulation's Impact on the Restructuring Industry," authors James Doak of Miller Buckfire & Co. LLC and Steven Argan and Alan Dalsass of MorrisAnderson wonder whether federal government actions taken in the wake of the financial crisis have fundamentally altered the landscape of corporate restructuring.

Doak, Argan and Dalsass note that during the recession, restructuring professionals believed, not without cause, that a rash of bankruptcy cases would logically appear just around the corner. "Throughout 2009, this proved to be true," they said. "What had started in the financial sector was spreading. The restructuring community rolled up its sleeves and set to work to fix/sell/dissolve/untangle the mess. There was the feeling that if you were not already up to your ears with work, you need only wait. The next wave was surely coming."

The expected deluge quickly dried into a drip, however, as the Fed, the Treasury and government agencies sprung into action to stabilize the financial system. Most notably the Fed quickly lowered its target rate, but, working in conjunction with the Treasury, also resurrected several programs designed to be temporary solutions to the problem of a lack of credit availability and lending. "These programs also amounted to trillions of dollars of new capital into the financial system, which, however necessary it seemed at the time, disrupted market dynamics in a way that continues to have persistent, unintended consequences today," they said.

Read more about how the Fed's mid-recession emergency measures will continue to effect trends in corporate insolvency in this week's edition of NACM's eNews.

- Jacob Barron, CICP, NACM staff writer

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