Too-big-to-fail bill pitched as fix for Dodd-Frank Act’s flaws

Banks almost $2 trillion larger than before crisis

Systemic Threat

Supporters of the Brown-Vitter plan say further measures to curb risk are needed because Dodd-Frank failed to address the systemic threat posed by the largest banks. Bankers have said those seeking additional steps aren’t considering the regulations in the 2010 law including so-called living wills that will lay out how financial firms are to be unwound after a collapse and FDIC resolution authority for failed companies.

“Dodd-Frank allows the regulators to do what Brown-Vitter is doing because it gives them the ability to set capital requirements but the requirements they set are very low and rely on risk weights,” Anat Admati, a Stanford University finance and economics professor, said in an interview. “This a step in the right direction definitely.”

Representative Jeb Hensarling, the Texas Republican who leads the House Financial Services Committee, said at an Independent Community Bankers of America conference yesterday that he opposes the idea of downsizing banks. The problem of too big to fail can be solved through changes in bankruptcy law, Hensarling said.

‘Critical Mass’

“There isn’t a critical mass in Congress to pass new too- big-to-fail legislation,” said Brian Gardner, senior vice president for Washington research at Keefe, Bruyette & Woods Inc. “However if some catalyst event comes along and changes the political calculus the odds could improve.”

Ed Yingling, the former American Bankers Association president who is now a partner at law firm Covington & Burling LLP in Washington, is also dubious of the bill’s chances.

“It will get a lot of discussion but ultimately it doesn’t have any chance of moving forward,” Yingling said in an interview. “Those who understand the way Washington works will say it’s hard to see how it moves.”

Bloomberg News

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