Report: “Too Big to Fail” Banking is Far From Over
Following the 2008 collapse of the housing market and subsequent bank bailouts, federal regulators insisted the 11 largest U.S. and foreign banks draft so-called “living wills.” These documents spelled out contingency plans in the event institutional collapse.
Banks were given two years to come up with a plan. They were ordered to simplify their legal structures and rewrite some internal policies in order to make sure that if they did fail, they would not mar the wider financial system.
The regulators recently ordered a “pencils down” to review the plans. The grade? Failing.
Our Miami foreclosure attorneys aren’t entirely surprised, as it’s likely the firms didn’t make much of an effort to map workable solutions. After all, from their perception, they are too big to fail. And even if they did, the public will have no choice but to bail them out again.
This is why it’s likely not a coincidence that not a single one of these nearly dozen banks was able to present a reasonable plan. Never mind the devastating impact it would have on the American economy – why would they want to come up with a plan to avoid a scenario where upon they would effectively have a taxpayer safety net?
The exercise of creating these “living wills” was part of an important check on financial giants, as written into the Dodd-Frank Act, a federal overhaul initiated after the economy tanked eight years ago – largely driven by poor banking practices.
So what will be the impact of this latest report? Essentially, the government has given banks an extension until July 2015 to rethink their corporate structures, and to develop plans that would make it easier to dismantle the firm in the event of an internal collapse. If those plans aren’t satisfactory, regulators said, they may force companies to shrink.
“May” is the key word. Banking firms hold an extraordinary amount of lobbying power, and as we’ve seen before, big business interests rarely seem to fail. These living wills were supposed to create a way in which we became less reliant on these firms, and we wouldn’t fear our own financial survival without them.
Of course, none of this stopped banks from trying to convince regulators they had developed a solvent plan. Firms submitted thousands of pages of materials. And yet, regulators said, “The plans provided no credible or clear path through bankruptcy that doesn’t require unrealistic assumptions and direct or indirect public support.”
This runs contrary to the rhetoric being fed to the public by both the banks and the Obama Administration. The latter wants to convince the public it’s reformed Wall Street. The banks are eager to avoid further restrictions that might cut into their bottom line. Both sides have been actively trying to convince the public that no institution is “too big to fail.”
Unfortunately, the plans as presented demonstrate very little ability to cope adequately with a bank collapse without some type of government aid. This, said FDIC Chairman Thomas Hoenig, would prompt an economic crisis “almost surely.”
If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call 305-358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.