Obamanomics and the End of “Too Big To Fail”

by Ross Raffin

Before Obamanomics, there was the Glass-Steagall Act. In the wake of the Great Depression, Congressional and Executive attempts at stemming financial crisis culminated in the Glass-Steagall Act of 1930s and creation of the Federal Deposit Insurance Corporation (FDIC). One of the FDIC's main tools to fight bank failures is Resolution Authority, the ability to temporarily take over failing banks and minimize harmful effects on the financial system. The FDIC assumes deposits and liabilities of the closed bank and makes sure that a bank free-fall doesn't bring the entire economy crashing down with it. However, the FDIC was created to operate in a financial world that is vastly different from the current one. The new regulatory framework of the Obama administration updates Resolution Authority so that it can handle modern market failures. This new form of Resolution Authority is accompanied by a systemic risk regulator which can enforce higher capital requirements and create oversight for the previously underground derivative markets. As FDIC Chairman Sheila Blair told Congress in March 2009 when describing the regulatory side of Obamanomics, “we need an end to too big to fail.”

in:
http://progressive.stanford.edu/cgi-bin/article.php?article_id=341