"Although the industry's track record when it comes to Dodd-Frank implementation is hardly noteworthy, its war-game to test regulators' new powers to seize and dismantle a megabank is not only fascinating, it's exemplary," writes American Banker's Editor-at-Large Barbara Rehm.
The Clearing House Association took on the undertaking of simulating a large bank failure. After 10 months and spending $2 million, the 18 largest banks that comprise the trade group were able to provide an example of the industry proactively participating in Dodd-Frank's implementation.
"Had this not gone well, it would have complicated the debate immensely," said Paul Saltzman, the president of the Clearing House Association.
During the simulation, which was divided into four phases, it was assumed that the Dodd-Frank Act was already implemented. The reform law prohibits regulators from bailing out any individual bank. This means that the simulated failed bank could not turn to the Federal Reserve Board for financial help.
Under Dodd-Frank, the Federal Deposit Insurance Corporation would have to confirm that a bank's failure could create a crisis across the entire financial system.
The Clearing House Association is still compiling the final report. Once completed, the trade group plans to share the report with regulators across the U.S.
For the full piece see "The Inside Story of How the Clearing House Proved Dodd-Frank Works" (may require subscription).