C
CPA2
Guest
Bipartisan negotiations on financial reform legislation had been making real progress toward truly ending “too big to fail” and replacing it with a strong resolution mechanism that would ensure that failed firms are liquidated. Unfortunately, President Obama has pulled the legislation away from this approach.
Instead he is supporting efforts that would actually extend the government’s ability to bail out failing firms through use of the Orderly Liquidation Fund. This newly proposed fund looks suspiciously similar to the original bailout program, which has steadily broadened in scope from its original purpose.
The Obama-supported legislation would also allow a newly established systemic risk regulator to identify systemically risky firms and to require them to register with the Federal Reserve for direct supervision. Under the guise of providing extra regulation for the riskiest firms, this would essentially create an official “too big to fail” club. Given the bailouts of the last two years, this signal would likely create unintended and unfair advantages in the market for the largest firms at the expense of smaller firms.
It’s clear that while this bill purports to address issues of systemic risk, it would have far-reaching negative consequences for our financial system. In addition to tacitly approving the “too big to fail” mindset and dramatically broadening the FDIC’s power to grant favored status to specific firms, the bill would establish a permanent mechanism for government bailouts of irresponsible firms.
In short, the proposal would shift exposure from the most systemically risky firms directly to the shoulders of the American taxpayer by granting government backing to firms that federal regulators consider “too big to fail.”
That’s a risk the American people don’t want - and one that Congress can’t afford to take.
Sincerely,
David Vitter
U.S. Senator
Instead he is supporting efforts that would actually extend the government’s ability to bail out failing firms through use of the Orderly Liquidation Fund. This newly proposed fund looks suspiciously similar to the original bailout program, which has steadily broadened in scope from its original purpose.
The Obama-supported legislation would also allow a newly established systemic risk regulator to identify systemically risky firms and to require them to register with the Federal Reserve for direct supervision. Under the guise of providing extra regulation for the riskiest firms, this would essentially create an official “too big to fail” club. Given the bailouts of the last two years, this signal would likely create unintended and unfair advantages in the market for the largest firms at the expense of smaller firms.
It’s clear that while this bill purports to address issues of systemic risk, it would have far-reaching negative consequences for our financial system. In addition to tacitly approving the “too big to fail” mindset and dramatically broadening the FDIC’s power to grant favored status to specific firms, the bill would establish a permanent mechanism for government bailouts of irresponsible firms.
In short, the proposal would shift exposure from the most systemically risky firms directly to the shoulders of the American taxpayer by granting government backing to firms that federal regulators consider “too big to fail.”
That’s a risk the American people don’t want - and one that Congress can’t afford to take.
Sincerely,
David Vitter
U.S. Senator