Tag Archive: Dodd-Frank


 

 

Resolving Too-Big-To-Fail Banks In The US

 

 

” The issue of size became important in 1984, when the government bailed out Continental Illinois National Bank & Trust (“Continental”), the seventh largest bank at the time. This bailout occurred because of concerns about systemic risk due to the bank’s size. The FDIC infused $1 billion in new capital into the Continental Illinois Corporation, the bank’s holding company, in exchange for preferred stock convertible to 80 percent of the equity. These funds were then downstreamed to Continental as equity capital to recapitalize the bank. When the government bailed out Continental, Stewart B. McKinney, a Connecticut congressman, declared that the government had created a new class of banks, those too big to fail (TBTF).2 Ever since this bailout, there has been a belief that certain banks or bank holding companies are TBTF, which we call the “TBTF problem.”

This belief that some banks are TBTF was behind the regulatory response to the financial crisis of 2007–2009, when the government bailed out the biggest banks in the country. Many individuals consider the biggest banks to have largely caused the crisis, and this belief has focused far greater attention on the TBTF problem. Indeed, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) of July 2010 created a new federal receivership process pursuant to which the FDIC may serve as the receiver for big banks whose failure poses a significant risk to the financial stability of the United States. The FDIC’s new authority is intended to eliminate the TBTF problem once and for all.

This paper looks at the historical treatment of troubled banks by the FDIC. It examines how the FDIC resolves troubled banks and the sources of funds available to it in the event resolutions are costly. This examination focuses on the treatment of big versus small troubled banks to assess the importance of the TBTF issue. Given the enormous costs involved in bailing out the biggest banks during the recent financial crisis, we discuss the FDIC’s new receivership process to handle troubled big banks. We then assess whether this process will indeed eliminate the problem of large bank failures.”

 

 

 

 

Not Done ? Hell , Now That He Has ” more flexibility ” He’s Just Getting Started

 

 

image

 

‘TSUNAMI’ OF REGULATIONS EXPECTED AFTER OBAMA REELECTION

  “President Barack Obama’s administration deliberately held off implementing burdensome regulations that favored environmentalists, labor unions, and dealt with Obamacare in the month leading up to the election because they would be politically unpopular.

Before Obama won reelection, the backlog of regulations suggested to many industry experts that if Obama won reelection, his administration would be “publishing thousands of pages of regulations in the coming months.”

Now that Obama won, some in the business community expect a “tsunami” of regulations that will burst through the dam because about 70 percent of regulations under review have been held for more 90 days, which is 30 days more than the customary 60-day limit. And these are regulations that have made it out of the various agencies. There are many more still on hold.

Many of those regulations involve the Environmental Protection Agency (EPA).

According to the National Journal:

Industry lobbyists and environmental lawyers estimate that the EPA is currently sitting on about a dozen new major regulations, completed, and ready to roll out the door, but on hold until after the election. Nearly all of them will have a significant impact on the coal and oil industry. “