Ex-Treasury Secretary Henry Paulson has written a piece in the Financial Times today. The sole excerpt that struck me as semi-interesting/maddening is this one where he calls for super-FDIC powers at Treasury and the Fed:
We have a process in place that gives the Federal Deposit Insurance Corporation ample and flexible authority to deal with a failing bank. After Bear Stearns’ collapse in March of last year, the Treasury and the Fed expressed concern that the government lacked this type of wind-down authority for a failing non-bank. That concern became a reality when Lehman collapsed in September, and there was no authority at the Treasury or the Fed to save the institution, and no authority to manage the wind-down outside bankruptcy. A regulatory system that treats systemically important institutions differently solely because of their charter does not make sense in today’s globally interconnected markets. Any rewrite of financial regulatory authorities must include the explicit federal authority to intervene and wind down a failing non-bank in an orderly manner.
Defining the proper wind-down authorities and their scope will require thoughtful analysis. Necessary authorities include the power – in exigent circumstances – to guarantee liabilities, provide loans and take other stabilising measures. But the circumstances that would trigger these authorities must be narrowly defined, to minimise moral hazard and preserve incentives for proper risk management.
More here.
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