Following the financial crisis, there was a desire to protect
the nation against banks becoming so large that their failure would
threaten the entire financial system. The result was the Dodd-Frank
financial reform act, signed into law in 2010. Now there's a
renewed debate over whether the nation's biggest banks are still
too big to fail, after Mitt Romney, in the first Presidential
debate, called Dodd-Frank, the "biggest kiss that's been given to
-- to New York banks I've ever seen." One of the law's co-authors,
Rep. Barney Frank (D.-Mass.), hotly disputed that assertion,
saying that if a bank "gets into so much debt that they [sic]
can't pay off all their debts, they are put out of business" and
noted that many firms were resisting Dodd-Frank's
implementation.
Last week, Dodd-Frank defenders got a boost thanks to a report produced for the Securities Industry and Financial Markets Association (SIFMA), which argues that Dodd-Frank's "orderly liquidation authority" (OLA) provided what the author called a "meaningful answer to too-big-to-fail," and treats opposition to the law as a mystery.
The law's critics also chimed in. There are, in fact, many aspects of Dodd-Frank that entrench too-big-to-fail status for big banks. As former White House Counsel C. Boyden Gray and attorney Adam White outline them in a Weekly Standard cover story, the new regulatory burdens imposed by the law will place smaller banks at a disadvantage relative to the bigger banks that can better absorb the compliance costs. In fact, some smaller banks may have to merge to deal with the costs effectively, creating yet more big banks in the process.
There's an even more troubling aspect of Dodd-Frank, which Gray and White do not mention. The act designates the too-big-to-fail institutions as SIFIs -- Systemically Important Financial Institutions. SIFIs are subject to additional regulations and eligible for OLA. Most importantly, they have to pay staggeringly large fees to help clean up the mess when a peer SIFI fails. That's right -- Dodd-Frank requires some financial institutions to pay to fix problems created by others.
Read more: http://spectator.org/archives/2012/10/29/dodd-franks-mystery-sifi-theat
Last week, Dodd-Frank defenders got a boost thanks to a report produced for the Securities Industry and Financial Markets Association (SIFMA), which argues that Dodd-Frank's "orderly liquidation authority" (OLA) provided what the author called a "meaningful answer to too-big-to-fail," and treats opposition to the law as a mystery.
The law's critics also chimed in. There are, in fact, many aspects of Dodd-Frank that entrench too-big-to-fail status for big banks. As former White House Counsel C. Boyden Gray and attorney Adam White outline them in a Weekly Standard cover story, the new regulatory burdens imposed by the law will place smaller banks at a disadvantage relative to the bigger banks that can better absorb the compliance costs. In fact, some smaller banks may have to merge to deal with the costs effectively, creating yet more big banks in the process.
There's an even more troubling aspect of Dodd-Frank, which Gray and White do not mention. The act designates the too-big-to-fail institutions as SIFIs -- Systemically Important Financial Institutions. SIFIs are subject to additional regulations and eligible for OLA. Most importantly, they have to pay staggeringly large fees to help clean up the mess when a peer SIFI fails. That's right -- Dodd-Frank requires some financial institutions to pay to fix problems created by others.
Read more: http://spectator.org/archives/2012/10/29/dodd-franks-mystery-sifi-theat
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