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September 1, 2014

End “Too Big to Fail” Once and for All

In advance of his speech on Friday to the Conservative Political Action Conference, Federal Reserve Bank of Dallas President Richard Fisher writes with Harvey Rosenblum about the failure of the Dodd-Frank financial reform law to adequately address financial institutions that are “too big to fail.”

“We offer a modest proposal to level the playing field: First, we would roll back the federal safety net—deposit insurance and the Federal Reserve’s discount window—to apply only to traditional commercial banks… Second, customers, creditors and counterparties of all nonbank affiliates and the parent holding companies would sign a simple, legally binding, unambiguous disclosure acknowledging and accepting that there is no government guarantee—ever—backstopping their investment.”

“Third, we recommend that the largest financial holding companies be restructured so that every one of their corporate entities is subject to a speedy bankruptcy process, and in the case of banking entities themselves, that they be of a size that is ‘too small to save.’”

“Our proposal won’t lead to bigger government. It will lead to smaller banks governed by the market discipline of creditors who are at real risk of losses, and by laws that apply equally to all.”

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