Wednesday, September 14, 2011

Van Helsing brings good news to the village

The Obama Administration has come one step closer to ending the scourge of the too big to fail banks ravaging this country. The FDIC board voted 3-0 Tuesday to approve rules under the Dodd-Frank Law that will require the large banks to write their own obituary in advance. In the event of another financial crisis (like they were planning for something unusual, “in the event of another sunrise“), in the inevitable crisis when the big banks can no longer capitalize themselves, these banks will be broken up into component pieces for liquidation instead of being bailed out.

These new rules require banks with $50 billion or more in assets to submit so-called living wills to the FDIC, the Federal Reserve and the Financial Stability Oversight Council and send revised plans annually. Included on this list are Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. The biggest banks must file by July 2012 and smaller ones in another year.

The FDIC says that 124 financial firms or more will be subject to the requirements, 26 of which are U.S. banks or financial firms. The rest are U.S. subsidiaries of banks based in foreign countries. The rules would also apply to 37 federally insured banks and thrifts holding about $3.6 trillion in deposits, or roughly 60 percent of all federally insured deposits.

Regulators would have the power to seize and dismantle banks and companies that threaten the broader financial system, an actual collapse of the banking system is not required for the government to act. They also have the power to designate other firms as potentially threatening the financial system and require them to submit plans.

The breakup plans must include detailed information on a bank's businesses and operations, structure, assets and liabilities, capital cushion held against risk, and how much they owe other big financial institutions. If their operations change, the banks would have to submit revised plans within 45 days. The sort of creative asset and liability shuffling that marked the years leading up to the 2008 collapse would be illegal without notifying the government.

Based on the review of these plans, the banking regulators are empowered to order financial institutions to make changes to their operations, such as selling assets or divisions. They also can reject the plans outright and order banks back to the drawing board.

In short, predatory capitalist banking is dead, and good riddance. Unfortunately the minute Republicans get back into control they will dig up the corpse and reanimate it. In the debate on whether Obama is really a Progressive, this little piece of regulation was something even FDR wasn’t able to achieve. That being said, the monster isn’t dead yet, villagers should continue to sleep with one eye open, torches and pitchforks at the ready.


Tony said...

Prairie2, I do not have the same level of enthusiasm for this new regulation as you do. First of all, being empowered to do something and actually doing it are two very different things. The Obama Administration is also "empowered" to criminally prosecute the banking crooks, but something tells me the half a dozen perp walks I have on back order at Amazon will not be delivered any time soon.

Second, because these are merely regulations, President Perry will very quickly be able to delete these regulations when he puts the fox back on patrol at the hen house.

I do not see any administration being anything but polite, sweet, deferential, and warm towards these banking criminals who have destroyed our economy. Other than being cute window dressing to please the villagers, I do not see this regulation changing that reality, at all.

John said...

I fully expect the preformed obituaries to include provisions to the effect: "If we get into financial trouble, the US government will insert its wide-bore intravenous conduit of flowing US dollars directly into our vaults."

In addition, the intense wailing these worms will soon be making about this "untenable hardship," if harnessed, would supply a sizable fraction of the nation's energy supply.

John Puma