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Congress to Fed: End Too-Big-to-Fail Already!
Between 2007 and 2009, the Federal Reserve doled out $16 trillion in massive, super-cheap loans to save flailing Wall Street banks. The 2010 Dodd-Frank financial reform act called for the Fed to limit its emergency lending powers so too-big-to-fail banks wouldn't count on the central bank saving them again. But three years after Dodd-Frank became law, the Fed still has not budged to curb its bailout powers—and Congress is losing its patience.
One section of Dodd-Frank requires that any future emergency lending by the Fed has to be backed by good collateral, can't be used to bail out insolvent firms, and can't go to a single institution. The law also places time limits on the Fed's emergency loans to banks. But the Fed still hasn't crafted these general provisions into specific regulations. Until it does, financial-reform advocates say, the central bank can interpret that part of the Dodd-Frank law however it wants—which means banks have little reason to doubt the Fed will again dole out easy money in the event of a financial meltdown.
This "is an important part of Dodd-Frank, designed to explicitly prohibit bailouts," Sen. Mark Warner (D-Va.), who sits on the Senate banking committee, told Mother Jones when asked about the Fed's delay in writing up the regulations. "The Federal Reserve should move expeditiously to issue the required regulations." Banking committee chair Sen. Tim Johnson (D-Ill.), Sens. Kirsten Gillibrand (D-NY) and Sen. Sherrod Brown (D-Ohio), and Reps. David Scott (D-Ga.) and Keith Ellison (D-Minn.) all echoed Warner's comments. Some members of Congress are so fed up that they're trying to force the Fed's hand; in April, Brown and Sen. David Vitter (R-La.) introduced a bill that would place far stronger limitations on emergency assistance from the central bank.
The Fed says it's still working on it. When pressed on the issue by Rep. Randy Hultgren (R-Ill.) at a recent House financial-services committee hearing, Fed chair Ben Bernanke said he had "made a lot of progress on that rule" and that he hoped to have the final regulations ready by the end of the year. Bernanke hasn't explained what's taking so long, but financial-policy experts say the reason for the holdup is obvious—the central bank doesn't want to give up any power it might want to use in the future.
One section of Dodd-Frank requires that any future emergency lending by the Fed has to be backed by good collateral, can't be used to bail out insolvent firms, and can't go to a single institution. The law also places time limits on the Fed's emergency loans to banks. But the Fed still hasn't crafted these general provisions into specific regulations. Until it does, financial-reform advocates say, the central bank can interpret that part of the Dodd-Frank law however it wants—which means banks have little reason to doubt the Fed will again dole out easy money in the event of a financial meltdown.
This "is an important part of Dodd-Frank, designed to explicitly prohibit bailouts," Sen. Mark Warner (D-Va.), who sits on the Senate banking committee, told Mother Jones when asked about the Fed's delay in writing up the regulations. "The Federal Reserve should move expeditiously to issue the required regulations." Banking committee chair Sen. Tim Johnson (D-Ill.), Sens. Kirsten Gillibrand (D-NY) and Sen. Sherrod Brown (D-Ohio), and Reps. David Scott (D-Ga.) and Keith Ellison (D-Minn.) all echoed Warner's comments. Some members of Congress are so fed up that they're trying to force the Fed's hand; in April, Brown and Sen. David Vitter (R-La.) introduced a bill that would place far stronger limitations on emergency assistance from the central bank.
The Fed says it's still working on it. When pressed on the issue by Rep. Randy Hultgren (R-Ill.) at a recent House financial-services committee hearing, Fed chair Ben Bernanke said he had "made a lot of progress on that rule" and that he hoped to have the final regulations ready by the end of the year. Bernanke hasn't explained what's taking so long, but financial-policy experts say the reason for the holdup is obvious—the central bank doesn't want to give up any power it might want to use in the future.
http://www.motherjones.com/politics/2013/07/why-fed-dragging-its-feet-stopping-bank-bailouts
