These distortions occurred not only at banks with access to FDIC insurance, but also at Fannie Mae and Freddie Mac (the two major GSEs) and the too-big-to-fail LCFIs.
As a final comment on resolving LCFIs, it is reasonable to question the Dodd-Frank Act's choice of the FDIC receivership approach.
Second, one of the main issues related to Lehman's collapse was not just the rapid unwinding of derivative and swap positions not granted a stay in bankruptcy, but also how this signaled to other LCFIs, in particular the other major investment banks, that these firms would not be bailed out, triggering runs on their liabilities.
The issue of how to maintain financial stability in the presence of a distressed global LCFI cannot be deferred until there is a workable global agreement that provides a general mechanism for resolution.
Further, detachment can run into a variety of legal problems, some of which have parallels in the problems with resolving the LCFI as a group.
But shelf-bankruptcy plans could be a big step toward better preparing for the failure of an LCFI.