How the GOP is crafting a return to the era of “Too Big to Fail” with planned Dodd-Frank repeal

On Monday, House Republicans began their push to repeal the Dodd-Frank financial reform law enacted under President Barack Obama. The House Financial Services Committee announced the policy effort by tweeting that they will “end the era of bailouts and ‘Too Big To Fail’ once and for all.”

Unfortunately, the proposed legislation does exactly the opposite.

After the 2008 financial crisis, Congress passed Dodd-Frank with the express intention to reign in excesses in the financial system that created “Too Big to Fail,” the phenomenon of banks becoming so large and intertwined that their failures could take down the entire U.S. economy.

The law addressed the problem of big bank failure using a number of mechanisms. It created a process for winding down big banks in trouble, forced banks to create plans for liquidating themselves in a crisis, created a special oversight board to address financial institutions large enough to pose systemic risk to the economy and limited the kinds of risky bets that big commercial banks could take.

While many critics and consumer advocates argued Dodd-Frank did not go far enough, most advocates agreed that it was a step in the right direction.

But now, in an effort to garner support for repealing the 2010 law, congressional Republicans are trying to turn the tables by arguing that Dodd-Frank does not actually fix the problem of too big to fail and actually exacerbates it. On his website, House Speaker Paul Ryan argues that Dodd-Frank made the “Too Big to Fail” concept “the law of the land” and that the Republican repeal bill will end this “once and for all.” But financial reformers say that argument is nonsense.

“The sponsors of the bill are well aware that bank bailouts are unpopular and so they try to perpetuate this notion that Dodd-Frank perpetuates bailouts — it’s simply nonsense,” Carter Dougherty, communications director for Americans for Financial Reform, an organization dedicated to safe and consumer friendly banking, said in an interview.


Source: How the GOP is crafting a return to the era of “Too Big to Fail”


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