Death to Too Big to Fail

ORLANDO — When Federal Reserve Board Chairman Ben Bernanke spoke to thousands of community bankers here last week, he received a standing “O” for his pounding of financial firms deemed “too big to fail.”

This, from a group not exactly noted for being rowdy and raucus.
Calling the huge financial firms labeled “too big to fail” a “pernicious problem” and “insidious,” Bernanke fired a broadside at the institutions and rules that allowed them to fly freely and then fall back on taxpayer bailouts to remain alive.

“It's unconscionable that the fate of the world economy would be tied to the fortunes of a few giant financial firms,” he told thousands of community bankers at the annual Independent Community Bankers of America conference.

Bernanke outlined three broad steps to be taken that would solve the problem of a few mammoth, unstable institutions threatening the entire financial system.

• Create tougher rules and oversight of the huge and complex firms by passing stronger regulations and consolidating supervision under one agency.

• Increase the resiliency of the entire financial system. A first step is to clear out the credit default swaps still mucking up the books and have stronger regulations on securitization of loans. Making the system stronger will limit the impact of a major player failing.

• Increase market discipline. When dealing with a major financial institution that is failing, Bernanke suggested following rules already in place with the Federal Deposit Insurance Corp. to seize firms and wind down assets. He said the government should never again be in the position of pouring public money into an operating institution — only one it has already seized and is selling off.

“To create a more competitive system as well as a safer one, we have to end the 'too big to fail' system once and for all,” he said.

And the crowd of small community bankers were on their feet.
— RT