I was a little surprised that the American Banker would publish a column ["Washington People," April 12] about the FDIC's attack on the Wall Street Journal article I wrote with [University of Pennsylvania law professor] David Skeel without asking for comment. The Journal article pointed out that the Federal Deposit Insurance Corp. — which is slated in the bill sponsored by Senate Banking Chairman Chris Dodd to handle resolutions of large nonbank financial institutions like Lehman Brothers — is unequipped to handle the failure of a large financial institution. The FDIC routinely handles the resolution of small banks. The assets and liabilities of a large nonbank financial institution are much more complex than anything the FDIC has ever seen in its routine work.

According to the column, the FDIC takes the position that it "resolved" Washington Mutual, which was a $299 billion bank, and is thus qualified to handle the resolution of, say, a Lehman Brothers. That's a bit of a stretch. WaMu was seized on Sept. 25, 2008, and sold to JPMorgan Chase on Sept. 26. No objective person would call that a resolution; it was simply a sale. The last time the FDIC had anything to do with a real resolution of a "large" bank, it was the failure of the Continental Illinois bank in 1984. That bank, at $40 billion, was considered too big to fail, which says a lot about the slipperiness of the TBTF idea.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.