Bailouts are no longer an option for Wall Street, a top Federal Deposit Insurance Corporation (FDIC) official told Congress yesterday. Mr Michael Krimminger, the FDIC's general counsel, said in testimony before a House Financial Services Committee panel that regulators now have "the tools to end too big to fail".
His position is a sharp turnaround from 2008, when Washington enacted a US$700-billion (S$860-billion) bailout for banks, the car industry and the giant insurer AIG at the height of the financial crisis. Policy makers argued that they had no choice but to rescue the firms because they were so large and interconnected that their collapse would have caused the nation's economic downfall.
"Such a presumption reduced market discipline and encouraged excessive risk-taking by firms," Prof Michael Barr, a former assistant Treasury Department secretary who is now a law professor, told the subcommittee.
After the financial crisis, Prof Barr was a leading architect of the Dodd-Frank Act, which aimed to rein in derivatives trading, mortgage securities and other risky Wall Street businesses.
For more: TODAYonline | Business | Wall Street is not too big to fail, insists regulator
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