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|Source:||New York Times Digital|
“Our explicit goal is that all market players should understand that bailouts are no longer an option,”
His position is a sharp turnaround from 2008, when the nation’s economy teetered on the brink of collapse. At the time,
“Such a presumption reduced market discipline and encouraged excessive risk-taking by firms,”
In the aftermath of the financial crisis,
The law, according to
“The Dodd-Frank Act expressly bars any bailout and prohibits taxpayers from bearing any losses,” he said.
Dodd-Frank, for instance, created the
The so-called systemically important financial institutions, or SIFIs, must also create a “living will” that spells out how the firms could be unwound through bankruptcy if they fall on hard times. And if the F.D.I.C. or Federal Reserve concludes that a firm’s plan is not “credible,” the regulators may force the company to shed some of its riskier assets or operations,
The plan, regulators say, will prevent a repeat of the chaotic
But some Republicans and financial industry executives say that labeling a company as “systemically important” only reinforces the too-big-to-fail problem. Others note that when complicated and huge institutions file for bankruptcy, as in the case of Lehman, markets can panic.
Dodd-Frank does offer an alternative: “orderly liquidation authority.” Under the law, the F.D.I.C. has receivership power over firms that are on the brink collapse, similar to the agency’s role when a local bank fails.
Critics contend that the process would give the government the arbitrary authority to decide when a firm lives and dies. Some also say it will force a fire sale of a failing firm’s assets.
“This orderly liquidation authority effectively eliminates the implicit safety net of ‘too big to fail’ that has insulated these institutions from the normal discipline of the marketplace.”