ending too big to fail

Banks deemed "too big to fail" were behind the financial crisis of 2007-2009. They were thought to be immune from self-destruction. hey are not thought to take bankruptcy. Their risks are huge to make big profits. The "too big to fail" comes from taken-for-granted government-sanctioned programs.

The "too big to fail" banks interfere with the transmission of monetary policy. Congress thought it would address the issue through Dodd-Frank. Dodd-Frank has not done enough to restrain the big banks and exacerbated weak economic growth. It has increased economic uncertainty by increasing regulatory uncertainty. It has helped out many lawyers and created new layers of bureaucracy. 

Despite the good intention, it has been counterproductive. Smaller banks need relief from some of the Dodd-Frank components. Financial institutions need to be restructured into multiple business entities. Only the downsized commercial banking institutions would benefit from the safety net of federal deposit insurance and access to the Federal Reserve's discount window. These two items would not be available to shadow banking affiliates.

See “Financial Stability: Traditional Banks Pave the Way,” Federal Reserve Bank of Dallas Special Report, January 2013, www.dallasfed.org 



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