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July 23 2015

Policy Focus: Ending 'Too Big To Fail'

Rachel DiCarlo Currie

Five years ago, President Obama signed into law the Dodd-Frank Act, a measure aimed at abolishing the de facto policy of letting certain financial institutions become and/or be treated as “too big to fail” (TBTF). But do top-down government programs help prevent TBTF businesses or are they at the root of the problem?

Most analysts agree that TBTF played a significant role in the 2008 financial crisis. Unfortunately, Dodd-Frank did not end TBTF. In fact, it effectively gave the policy an official imprimatur.

Dodd-Frank classified America’s largest bank-holding companies (those with $50 billion or more in assets) as “systemically important financial institutions” (SIFIs), and it empowered federal authorities to give non-bank financial firms the same designation. While SIFIs face tougher regulations than their smaller competitors, there is ample evidence that their TBTF status — now formally recognized by Washington — continues to deliver a major funding advantage.

As for Dodd-Frank’s new resolution authority, which was designed to help the government wind down a failing SIFI and prevent another crisis, it could easily be used as a mechanism for creditor bailouts of the kind we saw in 2008.

If lawmakers are serious about ending TBTF, they must implement reforms that will create a more equitable, balanced, and healthy U.S. financial system.

Click here to continue reading this 6-page policy focus in PDF. 



Independent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
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