How the FDIC Can End TBTF


My Sunday Washington Post Business Section column is out. This morning, we look at How the FDIC can curb banks’ reckless speculation. The print edition had the catchier headline How the FDIC could put an end to too big to fail.

The piece stems from my frustration with the current state of Banker-owned politics. Rather than just sulk, I decided to slip off to the future to see if we made any progress reigning in reckless taxpayer-backed financiers. It turns out that, after things got much worse, a simple rule change by the FDIC fixed Too Big To Fail and a host of other issues.

Here’s an excerpt from the Washington Post:

“Let’s be blunt: Banking has devolved into an unruly mess.

After years of deregulation, it has become all but impossible to re-regulate modern banking. There was a brief window during the credit crisis, but that has passed. Today, profits trump soundness. Safety and security are secondary to risk-taking and speculation.

I have been wondering what we, as a democratic nation, are going to do about this. Are we going to rule banks, or are bankers going to rule us?

My curiosity got the best of me. To find the answer, I slipped off in my time machine to the near future. While I was there, I learned that (yeah!) we had ended Too Big to Fail, eliminated taxpayer liability for reckless speculation, and freed hedge funds and investment banks from onerous regulations. In short, in the future, they seem to have figured out how to make the entire financial system safer and more stable. All this, based on a simple rule change from the FDIC.

I managed to sneak back home a copy of the letter behind that fascinating development. That letter from the office of the Federal Deposit Insurance Corp.’s chairman, circa 2015, follows:

The full FDIC letter form Chairman Hoenig follows . . .




How the FDIC can curb banks’ reckless speculation
Barry Ritholtz
Washington Post, June 3, 2012

June 3 2012 Washington Post column (PDF)

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