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Policy: Economy

Ending too-big-to-fail without breaking up the banks

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Beltway Confidential,Timothy P. Carney,Finance and Banking,Economy,Libertarian Populism,Wall Street

When you're talking about banks — especially big banks — a laissez-faire approach to regulation is often out of place: As long as government is subsidizing the banks, and as long as taxpayers are on the hook when these banks collapse, the government has a role in policing the banks.

I've supported breaking up the big banks, but many on the right resist this call. Ammon Simon of the Judicial Crisis Network has a more modest, and very reasonable, set of proposals at National Review.

The pillars:

Robust capital requirements — which dictate how much equity a firm must hold relative to its assets (the loans it extends and investments it makes) –– are essential to any Dodd-Frank alternative. ...

Regulators should consider, as an alternative or complementary measure, imposing contingent capital requirements on larger firms. ...

A new “systemic” chapter of the bankruptcy code (Chapter 14) for resolving financial institutions with more than $100 billion in assets. ...

Require big firms to “set aside reserves equal to the net advantage — funding and otherwise — they get for being big,” as determined by the Federal Reserve.

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