Reform reading: TBTF banks lacking wind-down plan could be forced to restructure

Lack of global pact also makes it hard to wind down big, complex banks

By

 Updated:

CitiGroup is among the biggest U.S. banks which each have $50 billion or more in assets.

 Mark Lennihan/The Associated Press

A daily round-up of commentary, analysis and news about the Dodd-Frank reform law.

TBTF banks – A senior Federal Deposit Insurance Corp. official says a systemically important bank or financial institution may be required to restructure its operations if it can’t create a plan to unwind its business in an orderly manner.

"Ultimately, a SIFI (systemically important financial institution) could be required to restructure its operations if it cannot demonstrate that it is resolvable in an orderly manner under the bankruptcy code," said Michael Krimminger, the FDIC chief counsel, in prepared testimony.

Krimminger also notes that the lack of an international insolvency framework makes it more difficult to resolve big, complex financial companies with global operations. Krimminger is among those scheduled to testify at a House Financial Services subcommittee hearing today, and his written testimony is posted here.

Hedge funds, insurers suddenly modest – Insurance giant Mass Mutual Financial Group, hedge fund legend Paulson & Co., and influential funds such as Fidelity Investments, BlackRock and PIMCO are among the financial services companies trying to convince federal regulators that they aren’t big enough to pose a threat to the U.S. financial system, the New York Times reports.

The lobbying spree by the big companies is aimed at avoiding a designation of “systemically important” by the Financial Stability Oversight Council, which was created by the Dodd-Frank law to detect early threats to the U.S. banking system and financial markets. Companies that are designated as “systemically important” will have to keep higher levels of capital and submit to stricter regulation.

The group will automatically include megabanks such as Bank of America Corp. and others with more than $50 billion in assets, but it’s unclear how regulators will pinpoint what other major players in the financial markets are systemically important.

Power of the revolving door – A new study by economists at the International Monetary Fund found that lobbying by U.S. financial services in the six years before the mortgage market collapse contributed to weaker regulations. Even more important than the amount of lobbying, according to the study, was whether lawmakers were being lobbied by former employees or colleagues, the Huffington Post reports.

"If a lobbyist had worked for a legislator in the past, the legislator was very likely to vote in favor of lax regulation," IMF economists Deniz Igan and Prachi Mishra wrote. The influence of a lobbyist with connections to a given legislator was so crucial, extra money spent on lobbying in those cases had little effect. "This suggests that spending more on lobbying isn’t much help to firms with well-connected lobbyists," Igan and Mishra wrote.

SEC nominee faces deep pay cut – If confirmed by the Senate to sit on the Securities and Exchange Commission, Republican nominee Daniel Gallagher will see his current $1.2 million in annual pay at a top law firm cut to $155,500, Bloomberg reports. 

Gallagher, 39, was nominated to replace Kathleen Casey, a Republican whose five-year term expired last week.  Gallagher left the SEC’s trading and markets division in 2010 to consult for Bank of America Corp., Deutsche Bank AG, as well as working with Goldman Sachs Group Inc., according to his disclosure form.

 

Care about freedom of the press? Support independent investigative journalism.

Donate now
Donate now