And the answer is “no”
Washington,
June 14, 2011 -
When President Obama signed the Dodd-Frank Act into law last summer, he set in motion the most ambitious changes to financial institution regulation since the Great Depression. The supporters of Dodd-Frank held out the promise that by increasing government control over the economy to an unprecedented degree, the Act would “end too big to fail” and “protect the American taxpayer by ending bailouts.”
But is that true?
Let’s see what others are saying:
Dallas Federal Reserve Bank President Richard Fisher warned that Dodd-Frank could have the “perverse outcome” of exacerbating the “too-big-to-fail” problem and lead to an even more severe financial crisis in the future. He added, “Dodd-Frank could intensify the tendency toward bank consolidation, resulting in a more concentrated industry, with the largest institutions predominating even more than in the past….A more consolidated industry would only magnify the challenge of dealing with systemically important institutions and offsetting their historically elevated too-big-to-fail status.”
Mr. Fisher’s warning appears to be coming true. Kansas City Federal Reserve Bank President Thomas Hoenig noted six months ago that “the five largest financial institutions are 20 percent larger than they were before the crisis. They control $8.6 trillion in financial assets — the equivalent of nearly 60 percent of gross domestic product. Like it or not, these firms remain too big to fail.”
AEI’s Peter Wallison: “The bill authorizes the Fed to regulate all non-bank financial institutions that are ‘systemically important’ or might cause instability in the U.S. financial system if they failed. These words mean something—that the companies designated for Fed regulation are too big to fail…Since these firms will be too big to fail, they will be seen in the market—as Fannie and Freddie were seen—as ultimately backed by the government and thus safer firms to lend to than small firms that are not government backed. This will permanently distort the financial market, favoring large companies over small ones, and eventually force a consolidation of each market where these firms exist into a few large competitors operating under the benign supervision of the government.”
Viral Acharya, professor at the NYU Stern School of Business: “For all its ambition and copious attempt to crack down on taxpayer funded bailouts, it is somewhat unfortunate that the Dodd-Frank Act, the most ambitious overhaul of the financial sector regulation in our times, will be anachronistic….Implicit government guarantees for large parts of the shadow banking sector remain unaddressed.”
Ken Griffin, founder of the $15 billion hedge fund Citadel Investment Group, said that not only would the legislation not work as proposed, but it is “going to deeply entrench crony capitalism into the very fabric of our financial system, which I am terrified about.”
And finally even Treasury Secretary Tim Geithner in a December 2010 interview with the Special Inspector General for TARP acknowledged that “in the future we may have to do exceptional things again...”
The SIGTARP reported that it was apparent that the Secretary was “referring to the possibility of future bailouts.”
So there appears to be a consensus view on the answer to the question, “Does the Dodd-Frank Act end too big to fail?
And the answer is “no.”
