…the bankruptcy process simply does not work for large, systemically important financial institutions in a way that can preserve stability and avoid disruptions in the financial system.
And, as we noted earlier…
The FDIC’s resolution powers are extremely effective when a smaller bank fails. But they fall short when it comes to very large financial organizations. Why? The main problem is that we don’t have the ability to resolve bank holding companies. We can only resolve the insured depository institution within the holding company.
Interesting excerpts there from the FDIC’s Sheila Bair, in a speech due to be delivered to The Economic Club of New York. The FDIC chair really throws her chips in at the end though:
To move forward, we can’t let ourselves be prisoners of out-dated authorities, trapped in a resolution regime which pre-dated the evolution of the “shadow banking sector”-crafted in a prior era when insured banks overwhelmingly dominated financial services. The sooner we modernize our resolution structure, the sooner we can end to big too fail, and clear the way for a stronger, brighter and more stable economic future.
Bank resolution power grab for the FDIC?