By Simon Johnson. This material was prepared as part of the New York Times’ Room for Debate on “Should Mega-Banks Be Broken Apart“? I strongly recommend the post by Anat Admati.
Writing in the Washington Post, in November 2009, Jamie Dimon, chief executive of JP Morgan Chase, argued:
“Creating the structures to allow for the orderly failure of a large financial institution starts with giving regulators the authority to facilitate failures when they occur. Under such a system, a failed bank’s shareholders should lose their value; unsecured creditors should be at risk and, if necessary, wiped out. A regulator should be able to terminate management and boards and liquidate assets. Those who benefited from mismanaging risks or taking on inappropriate risk should feel the pain.”
But the Dodd-Frank financial reform legislation does not create a “resolution mechanism” that can deal with cross-border megabanks; this point is admitted by all involved. And there is nothing in the G20 process or underway with any other international forum that would make a difference in this regard. Continue reading “Should Megabanks Be Broken Apart? (NYT Room For Debate)”