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If a movement to revisit the "orderly liquidation" provisions in Dodd-Frank gets going, the U.S. could find its financial system further destabilized without any dent in moral hazard.
January 11
Re: "
Ms. Petrou presents a cogent case for the retention of Title II, clearly pointing out the barriers to a "bail out" that it presents and the fact that the size of a threatened institution is not the sole determinant of systemic risk.
Once the question of systemic risk is raised however, the elephant in the room becomes visible. This elephant is the "vision thing" – what do Americans want their banking system to be and what is the set of appropriate strategies to get there?
The legislation seems to have been enacted with the unarticulated vision – we want what we had prior to the meltdown, but with the major risks removed. I am not sure that this is either possible or desireable. The innovative investment banks of consequence have been transformed into components of insured banking institutions, the number of tier 3 banks continues to vanish at a blazing speed and a small set of megabanks is becoming even more complex, dominant and gargantuan. It is hard to imagine that a regulator's bridge could accomplish a sale or reengineering of a failing giant without the expenditure of vast sums.
If bailouts are to be avoided, it seems that we need a different banking system than the one that is taking shape. If the one taking shape is desired, perhaps bailouts are an acceptable price to pay.
Robert Mankin
Consultant
Lakeside Financial Services
New York, NY
