Sheila Bair: FDIC holds new bank liquidation powers
Regulators are provided stronger powers under the recently-passed Dodd Frank reform to shut down any financial firm deemed to be too big or too risky; an option they will not hesitate to use, a congressional-appointed committee heard today. Sheila Bair, chairman of Federal Deposit Insurance Corporation told the Financial Crisis Inquiry Commission this morning in Washington that "the new law gives the FDIC broad authority to use receivership powers, similar to those used for insured banks, to close and liquidate systemic financial firms in an orderly manner." In his speech prior Federal Reserve chairman Ben Bernanke reiterated the regulatory resolution to dissolve any such institution. Bair's comments largely echo that stance, but also speak of some of the challenges such a calling presents. "Large, complex institutions are also difficult to resolve because they have fewer potential acquirers, who themselves may be negatively impacted by the failure of the target institution," she said, "and may have franchises, such as broker dealer operations, whose value dissipates quickly following failure." As far as other benefits to Dodd Frank, Bair said in terms of systemic oversight, the Financial Stability Oversight Council will be set up to identify emerging systemic risks and close the gaps in financial supervision. "The unregulated shadow financial sector is finally being placed under the oversight of a Consumer Financial Protection Bureau (CFPB) that will set and maintain strong, uniform consumer protection rules for both banks and non-bank financial firms," she said. Like Bernanke, Bair said that the previous regulatory regime was ineffective at preventing the financial crisis. However, new authority under Dodd Frank, led the FDIC to approve the creation of a new Office of Complex Financial Institutions. "The CFI will perform continuous review and oversight of bank holding companies with more than $100 billion in assets, as well as non-bank financial companies designated as systemically important by the new Financial Stability Oversight Council," she said. "The CFI will also be responsible for carrying out the FDIC's new authority under the Dodd Frank Act to implement orderly liquidations of systemically important bank holding companies and non-bank financial companies that fail." Write to Jacob Gaffney.