The head of the Federal Deposit Insurance Corporation says that the government’s strategy in the financial crisis of bailing out huge institutions deemed “too big to fail” must be replaced by a new model.
The official, Sheila C. Bair, told Congress that a new system of supervision was needed to prevent institutions from taking on excessive risk and becoming so large that their failure would threaten the financial system. Such a mechanism would be similar to what the F.D.I.C. does with federally insured banks and thrifts, she added.
Testifying at a packed Senate Banking Committee hearing, Ms. Bair said that simply creating a so-called systemic risk regulator — a central idea in the discussion of overhauling the government financial rules — “is not a panacea.”
Senator Dodd suggested it could make more sense to give the F.D.I.C., which has the expertise in that area, authority over big failing institutions.
But Representative Barney Frank, Democrat of Massachusetts., chairman of the House Financial Services Committee, and other lawmakers have proposed that the Federal Reserve assume the role of systemic regulator to monitor against the kinds of risks that plunged markets worldwide into distress last year.
Yes, I really need a better article – or a video of the brief interview Ali Velshie did with Sheila Bair over the weekend. This will have to do for now. Get yourself thinking, eh?
The oversight and regulatory power the FDIC has over banks is exactly what is needed for financial institutions and their close kin like AIG. Just as an example, FDIC has the legal authority when taking over a bank to determine who is worth keeping or firing, who is worth giving a retention bonus to – obviously, if at all, the guys you’re keeping – and the legal right to dissolve contracts for bonuses for the managers you’re kicking out the door.