FDIC’s Bair Outlines Priorities For Financial Overhaul
Federal Deposit Insurance Corp. Chairman Sheila Bair outlined on Monday three points she said must be part of any financial regulatory overhaul, but said market incentives must also be realigned to make credit markets function properly over the long term.
?Fixing regulation can only accomplish so much,? she said in a speech to the National Association for Business Economics. ?Rules and regulations can help constrain our ?creature spirits,? but unless economic incentives are also appropriately aligned, regulation alone will fail.?
Ms. Bair?s three key items for legislation:
1) Ending ?too huge to fail? — Should include a pre-funded resolution mechanism and a ?apparent mandate? to close large troubled firms that could threaten the broader economy. Shareholders and creditors would bear losses, not the public. ?The lack of a resolution mechanism for these companies is not some minor loophole that needs to be closed. On the contrary, it was a fundamental cause of the financial crisis and the enormous economic costs ensuing from it.?
2) Plugging gaps in regulation — Make a systemic risk assembly to share data and knowledge about financial markets.
3) New consumer protections – Make uniform regulatory standards for banks and nonbanks and ensure customers are well-informed