Tag Archives: Resolution Authority

The FDIC’s Resolution Problem

By Simon Johnson.  Links to the articles mentioned below are available here: http://economix.blogs.nytimes.com/2011/04/28/the-problem-with-the-f-d-i-c-s-powers/

Under the Dodd-Frank financial reform legislation (Title II of that Act), the Federal Deposit Insurance Corporation (FDIC) is granted expanded powers to intervene and manage the closure of any failing bank or other financial institution.  There are two strongly-held views of this legal authority: it substantially solves the problem of how to handle failing megabanks and therefore serves as an effective constraint on their future behavior; or it is largely irrelevant.

Both views are expressed by well-informed people at the top of regulatory structures on both sides of the Atlantic (at least in private conversations).  Which is right?  In terms of legal process, the resolution authority could make a difference.  But as a matter of practical politics and actual business practices, it means very little for our biggest financial institutions. Continue reading

The Myth Of The Resolution Authority

By Simon Johnson

Back when it really mattered – last spring, during the Dodd-Frank financial reform debate – Senator Ted Kaufman of Delaware emphasized repeatedly on the Senate floor that the proposed “resolution authority” was an illusion.  His point was that extending the established Federal Deposit Insurance Corporation (FDIC) powers for “resolving” (jargon for “closing down”) financial institutions to include global megabanks simply could not work. 

At the time, Senator Kaufman’s objections were dismissed by “experts” both from the official sector and from the private sector.  Now these same people (or their close colleagues) are falling over themselves to argue resolution cannot work for the country’s giant bank holding companies.  The implication, which these officials and bankers still cannot grasp, is that we need much higher capital requirements for systemically important financial institutions.

Writing in the March 29, 2011 edition of the National Journal, Michael Hirsch quotes a “senior Federal Reserve Board regulator” as saying: Continue reading