FDIC Head Wants End To "Too Big To Fail"

New Powers Needed To Prevent Companies From Taking On Excessive Risks Dangerous To Economy

(AP)  The head of the Federal Deposit Insurance Corp. says new powers are needed to oversee companies that pose financial risks to the economy, an authority that could be shared by the FDIC and other regulators.

In testimony at a Senate hearing Wednesday, FDIC Chairman Sheila Bair called for a new system of supervision that prevents institutions from taking on excessive risk and becoming so large their failure would threaten the financial system.

She suggested the Treasury Department, FDIC, Federal Reserve and Securities and Exchange Commission could be members of a new "systemic risk council" set up to monitor large institutions and potential risks to the system.

Bair stressed again that the "too big to fail" policy used by the government in the financial crisis must end.

"Our current system has clearly failed in many instances to manage risk properly and to provide stability," Bair said.

She maintains that a mechanism is needed to resolve troubled financial institutions similar to what the FDIC does with federally insured banks and thrifts.

"We're talking about a resolution and not a bailout," Bair told the Senate Banking Committee. If needed, big banks and other financial institutions should be broken up in those instances, she said.

Policymakers are trying to craft a new system of financial rules to replace the "too big to fail" stamp put on federal policy in the financial tumult, as the government rushed in to rescue insurance giant American International Group Inc., and pumped tens of billions of dollars into Citigroup Inc. and Bank of America Corp.

The Obama administration has presented to Congress an extensive overhaul of financial regulation meant to prevent a repeat of the banking crisis. A pillar of the plan is creating a so-called systemic regulator to monitor against the risks that plunged markets worldwide into distress last year.

A "council" of regulators would be better equipped than a single agency to exercise that oversight, writing rules and collecting data on large institutions that pose potential risk to the system, Bair said.

For taking over and resolving financial institutions, Bair said the FDIC is well equipped to do so. She suggested Congress could give the agency the authority to resolve bank holding companies like Citigroup or Bank of America — now under the supervision of the Fed. The FDIC now can take over and resolve only the subsidiaries of bank holding companies that take federally insured deposits.

Rep. Barney Frank, chairman of the House Financial Services Committee, and other lawmakers have proposed that the Fed assume the role of systemic regulator.

[ianlou]

Part of the "Too Big to Fail" policy should be a required "Bust up and Sell" policy.

A failing company deemed too big to fail, should not be allowed to continue to exist.

[godfirstcountrysecond]

The intorlerance some have of those who believe in God is not so shocking. It is well known that we will be persecuted. If you know anything about prophecy then you know what is next. Either you do not believe which is your choice or you are scared and know what you did not believe is actuality. Because those of us who know God are not afraid. I understand tolerance and that My right wing approche scares some but I also know that I like you have a right to my opinion and believe that racism comes in many forms.

[jbar116]

Bush, Obama it doesn't matter the crooks in politics and running these corporations are one in the same; they all worked together and will work together in the future so the little guy has to stick together. The recent "Tea Party" was one example of what "We the People" can do if we band together. Suggestion, since City Bank needs 39Billion more lets take all of our money out of their stock and stop using their services. Let them see what it feels like to be SCREWED by they people who they are screwing. BREAK THEM UP and sell them off.

[bobnjersey]

[As to the person that suggested that big companies be broke up, I disagree with that too, again, let the market take care of itself and the chips fall where they may. Government should stay out of this entirely! ]
[Posted by aldon61 at 10:42 AM : May 6, 2009 ]

'the market taking care of itself' produced the cdo and cds scandals ... which were the predominant cause of the issues with the housing market ... and ultimately fed the whole downturn in the economy. investment banks deliberately created financial instruments to hide risk from the investor ... which is just the opposite of what they should be doing ... their value add is to mitigate risk for the investor.

while you're waiting for 'the market to take care of it' ... there will be many casualties along the side of the road to 'corrected' ... and this is what regulation and control is for ... to lessen the severity of these cyclical swings.

free market capitalism is a myth ... to be used as the subject of novels and economic professor dissertations.

[patocc123]

Bipartisanship is just another word for political cover.
Posted by omega39-2009
-----------------------------------
I do not want Bipartisanship I want both political parties to go away. They are wants wrong with the country atm and the droves of lemmings that follow them blindly.

[omega39-2009]

The republicans were too busy with thier head up thier ***** on the Iraq war to care or focus on this. The democrats who are just as much in bed with the finacial sector as the republicans were too busy running scared and making sure they where re-elected cause at the time the national atomsphere was your either for the war or your anti-american. Both sides are to blame. Plus again the democrats are to blame for this war too. No fillabuster proof congress . Nice key word there nowadays fillabuster. But yet they voted for it to get re-elected. The question I always find myself asking is . . Which is worse someone who does something wrong that doesn't know any better who someone who knows its bad and does it anyways for personnal gain. But alas the democrat supports are so blind nowadays that they are no better than the repubicans now.
Posted by patocc123 a

Bipartisanship is just another word for political cover.

[patocc123]

So Clinton was supposed to take care of a Republican made problem? He didn't do it so everyone was absolved until another Democrat showed up? Are you saying the Republican War got in the way of everything including common sense and now it is back on a Democrat to fix things again?
Posted by WITHINMEANS
-------------------------------
Umm as President your suppose to fix the problems of the US so YES. I'm blaming both sides your giving a free pass cause its your guy when it should be our guy. Thats what is wrong with people who blindly follow people cause they have a "D" or "R" next to thier name. Plus yes the on the Iraq war . . . Listen if the republicans knew there was a problem and ignored it cause the dems said there was no problem then both parties are to blame. The republicans were too busy with thier head up thier ***** on the Iraq war to care or focus on this. The democrats who are just as much in bed with the finacial sector as the republicans were too busy running scared and making sure they where re-elected cause at the time the national atomsphere was your either for the war or your anti-american. Both sides are to blame. Plus again the democrats are to blame for this war too. No fillabuster proof congress . Nice key word there nowadays fillabuster. But yet they voted for it to get re-elected. The question I always find myself asking is . . Which is worse someone who does something wrong that doesn't know any better who someone who knows its bad and does it anyways for personnal gain. But alas the democrat supports are so blind nowadays that they are no better than the repubicans now.

[inventagod]

The bigger they are, the harder they fail.

Let them.

[antoniof123]

Here is a fix start holding these corporate mobsters accountable instead of letting them hide behind the corporate legal entities put them in jail.

Better yet fire them then put them in jail.

[aldon61]

Simply put, I agree with her. The free market will take care of itself. Investors should only risk capitol that they can afford to lose. Buyer beware! Don't bail out these rich investors with taxpayer dollars. As to the person that suggested that big companies be broke up, I disagree with that too, again, let the market take care of itself and the chips fall where they may. Government should stay out of this entirely!

[WITHINMEANS]

republicans failed there cause they turned the other cheek and let it continue when a problem was seen but did nothing cause they were focused on Iraq. How short people's memories are and how quickly they believe one-side without looking at all the facts.
Posted by patocc123 at 8:19 AM : May 6, 2009

So Clinton was supposed to take care of a Republican made problem? He didn't do it so everyone was absolved until another Democrat showed up? Are you saying the Republican War got in the way of everything including common sense and now it is back on a Democrat to fix things again?

[inventagod]

Wa$hingtoon is broken beyond repair.
Don't expect too much from the crooks.

[bobnjersey]

[The big question is will these banks and financial institutions get around the new regulators by some well placed campaign contributions, corporate lobbying, and arm twisting on our members of Congress ...

I have noticed that Congress in very good at reacting to a crisis by spinning the blame away from their insufficient oversight. I have noticed Congress putting on grand shows of anger and angst but then letting legislation flounder. I have noticed Congress already looking toward the needed cash for their next campaign versus resolving the current crisis and the banks and financial institutions, although bankrupt, are more than willing to provide the funds to preserve the status quo.. ]
[Posted by afmcalax at 9:44 AM : May 6, 2009 ]

you are very perceptive ... little grasshopper.

nothing will be done ... and nothing will change ... until the private money is removed from the political process. there's nobody in a position to make this happen that wants this to happen ... so it won't happen.

you'll have to tear it down and rebuilt it again if you want this.

[afmcalax]

The big question is will these banks and financial institutions get around the new regulators by some well placed campaign contributions, corporate lobbying, and arm twisting on our members of Congress that have proven in the past they are more than willing to be bought if it ensures their re-election. Until Congress looks after the citizens before big business, this will be doomed to fail also.

I have noticed that Congress in very good at reacting to a crisis by spinning the blame away from their insufficient oversight. I have noticed Congress putting on grand shows of anger and angst but then letting legislation flounder. I have noticed Congress already looking toward the needed cash for their next campaign versus resolving the current crisis and the banks and financial institutions, although bankrupt, are more than willing to provide the funds to preserve the status quo..

[steeepe]

Time for some trust-busting. If it's too big to fail, then it's too big and should be broken up.

[ddaryl1]

talk about hindsight 20/20

[omega39-2009]

The democrats could of done it too when Clinton was in office. I hate to burst people's bubbles like the housing market but all the deregulations that lead to this finicial disaster where sign while Clinton was in office. A little side note that lemmings forget to mention.
Posted by patocc123

Exactly why I am happy to see Obama tell the republicans to take their "advice" and shove it up their_azz. Win, lose or draw the consequences will fall to the democrats and their performance will be judged on the outcomes.

[walt1944]

Corporate America is under the belief that because it is "too BIG to Fail" that the gocvernment and us taxpayers will run to Corporate America's and Wall Street's rescue buy printing more money and handing it over to them so they can continue to make bad decisions and pay out huge salaries and bonuses as well as afford $100,000 shower curtains and $1,000 wastebaskets!

This "Too Big to Fail" notion was fostered by the court of the former-Great Emperor Bush IIand Hank "Old Baldy" Paulson who argued that places like AIG, BofA, and Citigroup had to be "protected" from failing or the entire economy would go south!

I seem to remember that Enron and Worldcom were "Too Big to Fail" in 2001, but they both went under, SOME of their corporate executives went to a "country-club" prison, a lot of people lost their joibs and retirement (just like NOW!!!), but the country survived!!!!

NO company is TOO BIG to fail, and as the saying goes, "The BIGGER they are, the HARDER they faill!!!"!

HAIL OBAMA!!!!

[patocc123]

If the republicans had done their job when they controlled both House and Senate, they could have pulled the rug out from underneath the banks and home lending institutions and none of the would have ever happened. Instead, it seems they were the promoters for the debacale. Now there is another crew running the show and they have to clean up the mess the republicans left for them. If you don't like the mess, then blame those who created it, not the one's who found themselves with an economic abortion to clean up.
Posted by major-domo
-------------------------------------
The democrats could of done it too when Clinton was in office. I hate to burst people's bubbles like the housing market but all the deregulations that lead to this finicial disaster where sign while Clinton was in office. A little side note that lemmings forget to mention. Plus when trouble did arise it was the democrats that told the treasury department that they did not see a problem. republicans failed there cause they turned the other cheek and let it continue when a problem was seen but did nothing cause they were focused on Iraq. How short people's memories are and how quickly they believe one-side without looking at all the facts.

[reasoned1955]

If the republicans had done their job when they controlled both House and Senate, they could have pulled the rug out from underneath the banks and home lending institutions
Posted by major-domo at 8:04 AM : May 6, 2009
=====================
Huh? Are you assuming nobody here keeps score or did you have a typo? You may want to research Barney Frank's committee and its protection of Fannie and Freddie. Its well documented and easy enough to find. But, I also know that some actions could've been taken even earlier by the Repubs to help head off this crisis.