‘Too Big to Fail’ Must End For All, FDIC Chief Says
October 5, 2009, 6:42 am
The head of the Federal Deposit Insurance Corporation said on Sunday that she wanted to end the “too big to fail” doctrine and shrink the shadow banking system that operates outside the reach of regulators.
Sheila Bair, chairwoman of the F.D.I.C., said a proposal to create the authority to shut down failing systemically important financial firms may need to be extended to insurers and hedge funds, Reuters reported.
“We need to end ‘too big to fail’ and this needs to be an overarching policy that applies to everyone,” Ms. Bair said, speaking to a meeting of the Institute of International Finance.
Ms. Bair said she believed that bank holding companies with subsidiaries that are shut down by regulators also should be made to pay the price of failure by being subject to the same wind-down process.
“I believe that the new regime should apply to all bank holding companies that are more than just shells and their affiliates, regardless or not whether they are considered to be systemic risks,” she said.
Financial firms subject to systemic0-risk shutdown authority should likely also be required to publish “living wills” — details on how an orderly wind-down would play out — on their Web sites to provide clarity to shareholders and customers.
And by applying the resolution authority more broadly outside of normal regulated bank holding companies, it would help shrink the shadow banking system by discouraging regulatory arbitrage, under which financial firms shop for the most lenient supervisors.
“If you tighten regulation of the banks even more without dealing with the shadow sector you could make the problem even worse,” she said.
Ms. Bair added that reducing the shadow banking system and regulatory arbitrage is her top priority for Congress as it works on legislation to revamp financial oversight this fall.
She said there were some problems in extending resolution authority beyond banks to insurers and hedge funds, which she called a “sea change” in their oversight. But these could be overcome and it was appropriate to consider including them in the systemic risk resolution authority regulation.
“If the entity is systemic, that means if the entity gets in trouble it could create problems for the rest of us,” she said.
Ms. Bair added that the F.D.I.C. is talking with the American Securitization Forum, a financial trade group, and others regarding the agency securitizing some of the assets that it has taken over from failed banks in order to help jump-start securitization markets in the United States.
Comments
1. October 5, 2009
8:44 am
This is what Bair is not telling, but will come out eventually. In Sept. 08, before TARP, JP Morgan was in dange of collapse. In order to “save” JPM (remember, this is pre-TARP), Bair and Paulson decided to seize and gift Washington Mutual to JPM. Washington Mutual was NEVER anywhere near insolvent. In fact, WAMU had about 20 billion of unencumbered CASH that JPM needed to survive.
Bair really regrets not being able to “wind down” the holding co. of Washington Mutual Bank. They have the goods on her and James Dimon of JPM.
Mark my words;
Bair is scandalized and resigns, or is fired.
Dimon of JPM is scandalized and resgns.
— bigshow
dealbook.blogs.nytimes.com/2009/10/05/...-all-fdic-chief-says/
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