No House List of Too-Big-To-Fail Institutions
On Monday, a key lawmaker, Barney Frank, said that legislators will not write legislation to create a specific list number of institutions that are “too-big-to-fail.” This decision was made even if the White House proposed the creation of such a list.
At a National Press Club luncheon, Committee Chairman of House Financial Services, Barney Frank, said that excessive leverage will have restrictions but not with predetermined list.
The comment of Frank came after Ben Bernanke, Federal Reserve Chairman, said that he is expecting about 25 institutions to be systemically risky based upon the proposal of White House submitted to Congress. Bernanke also mentioned that creating a process to unwind large mega-institutions as envisioned in the regulatory reform proposal of the White House would eliminate the perception that large systemically significant firms are “too-big-to-fail.”
On the other hand, Frank argued that when lawmakers take this issue, then observers would believe that the institutions were “too-big-to-fail.” He said further, “Now, the administration sees that one way of disciplining the financial institutions is by listing the top problematic ones; however, many people think that the list would be insignificant because these companies would be glad to be there.”
In addition, Frank believes that by year-end, lawmakers will eventually approve legislation that will impose new regulations on financial institutions, whose collapse may cause systemic risk. This legislation is part of another larger multi-part effort in response to our financial crisis on reform bank and securities (Capitol Hill). Frank scheduled a committee vote on Tuesday that will consider legislation imposing new restrictions on the executive compensation.
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