Document Type

Working Paper

Publication Date



Center for Contract and Economic Organization


The Charles Evans Gerber Transactional Studies Center


This is a paper for a conference at Cardozo Law School on the relation between securitization and secured credit. Concerns about securitization have been focused by decisions of various States to take the lead in attempting to decide how those issues will be resolved in bankruptcy proceedings. In this paper I step back from that debate to ask a more fundamental question: who is to decide the appropriate policy response to those issues? On the one hand, Congress could decide those questions in the exercise of its exclusive constitutional power to enact bankruptcy laws. Or, if it chose to do so, in the exercise of its authority over interstate commerce. Conversely, the states could resolve those questions in the exercise of their traditional control over basic issues of commercial law, reflected most prominently in the Uniform Commercial Code. Securitization raises difficult policy questions in part because it falls at the boundary between those two spheres: the effect and legitimacy of those transactions is plainly is an important question of commercial law, but much of what is most important involves specific questions about how the transactions are treated in bankruptcy.

This paper is distinct from the body of existing literature on the topic because I am focusing not on the commercial-law questions common to discussions of the topic – Are the securitization transactions efficient? Do they inappropriately undermine the stability of originators? – but instead on federalism questions: as a matter of allocation of power, when does the supervening power of federal law preempt state efforts to address those questions?

My analysis proceeds in three steps. First, I describe the basic system that successfully delineated responsibility between Congress and the state legislatures until recent years (perhaps about 1990), and a number of systemic factors that have caused the old system to break down. Second, I discuss examples of potentially problematic legislation – not only legislation related to securitization, but other pieces of state legislation that have their primary effects in the bankruptcy of the affected parties. Finally, I use those examples to illustrate when those statutes should – and should not – be held preempted by Congress's authority under the Bankruptcy Code.