Sheila Bair, chairman of the Federal Deposit Insurance Corp., said in an interview on CNBC that the “too-big-to-fail” doctrine must come to an end. She called the president’s proposal on regulation a very good beginning to this process.
“Clearly, there has been moral hazard and lack of market discipline fed by the ‘too big to fail’ doctrine, and this in turn has been fed by the lack of resolution mechanism that really works for very large financial organizations and this has been a central focus of ours,” [Bair said].
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[Bair noted her agency is still] “analyzing the whitepaper and want to work with the administration and Congress constructively on this.”
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“[The FDIC] is guaranteeing over $6 trillion right now,” [Bair] said. “The FDIC has tremendous exposure to the system so we would like a real say on systemic risk issues. [Reform overhaul] is an institutional issue, not a turf issue or a personality issue.” [CNBC]
One issue that shouldn’t be overlooked in the “too big to fail” concept is that some institutions have developed such unique positions that their elimination would not only be quite complicated but will also cause serious harm to their customers.
