The Obama-Frank Systemic Risk Plan: Some Good and a Lot of Bad
David C. John /
The Treasury Department and House Financial Services Committee Chairman Barney Frank have just released a highly complex 253 page draft bill that is supposed to deal with questions ranging from indentifying and dealing with systemic risk facing the financial services system, regulating and closing failing “too big to fail” financial services firms, and a wide variety of other potential problems. As expected with a bill that long and detailed, it will take a while to understand everything that it contains, but first impressions are that it contains many bad ideas with a few good ones sprinkled in.
The good news is that after a great deal of criticism, including ours , the Treasury Department has dropped its plan to make the Federal Reserve the regulator of systemic risk, and replaced it (as we urged) with a council of regulators. The new draft bill also limits the ability of the Federal Reserve to bail out firms to its existing temporary liquidity assistance authority found in section 13(3) of the Federal Reserve Act, and only allows it to use that with the advance approval of the Treasury Secretary.