Monday, March 11, 2013

Honey, I shrunk the bank.

As a continuation of the on-going discussion I have with colleagues, one sends me this link to a WSJ article by Dallas Fed Chief Richard Fisher and his executive VP Harvey Rosenblum on "How to Shrink the 'Too-Big-to-Fail' Banks". My comments were:

I generally like it—a step toward less government involvement and less social insurance of profit-seeking firms. But there is a bit of hand waving over the third tier in their proposal:
Third, we recommend that the largest financial holding companies be restructured so that every one of their corporate entities is subject to a speedy bankruptcy process, and in the case of banking entities themselves, that they be of a size that is "too small to save." Addressing institutional size is vital to maintaining a credible threat of failure, thereby providing a convincing case that policy has truly changed.
Easier said than done in defining how small a bank would need to be. They need more specifics here; otherwise, the cronyism is in the details.

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