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- Peter Wallison, Arthur F. Burns Fellow in Financial Policy Studies, American Enterprise Institute
In December 2013, the Federal Deposit Insurance Corporation (FDIC) released a proposal on the “Single Point of Entry” (SPOE) strategy as a means of resolving large failing banks without financial-market disruption. Paul Kupiec and Peter Wallison wrote a paper strongly critiquing the strategy, and presented it to Federalist Society members on a January 22 Teleforum conference call. A recording of their presentation is available here. Randall Guynn, Prof. David Skeel, and James Wigand offered their defense of SPOE and their response to Mr. Kupiec and Mr. Wallison on a Teleforum conference call.
The 2008 financial crisis—like the Great Depression—was a world-historical event. What caused it will be debated for years, if not generations. The conventional narrative is that the financial crisis was caused by Wall Street’s actions and insufficient regulation of the financial system. That narrative produced the Dodd-Frank Act, the most comprehensive financial-system regulation since the New Deal. A competing narrative about what caused the financial crisis has received little attention -- many contend that the crisis was caused not by bad actors on Wall Street, but by government housing policies. Peter Wallison marshals evidence in support of this view in his recently-released book, Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again.
In December 2013, the Federal Deposit Insurance Corporation released a proposal on the so-called “Single Point of Entry” (SPOE) strategy as a means of resolving large failing banks without financial-market disruption. In a recent paper, AEI scholars Paul Kupiec and Peter Wallison raised questions about legal support for the SPOE strategy in Title II of the Dodd-Frank Act, whether the strategy can be used for resolving the largest failed banks, and the economic consequences of using the SPOE approach to attenuate the systemic risk of a large-bank failure. To facilitate a SPOE resolution, regulators recently proposed new requirements that large financial firms have enough long-term debt and equity — or total loss absorbing capacity — to cover potential losses and bank recapitalization. Mr. Kupiec and Mr. Wallison’s paper questions whether these measures will allow authorities to resolve large banks without a bailout or disorderly break-up.
Mr. Kupiec and Mr. Wallison will presented their paper and fielded audience questions during a live Teleforum conference call.
Key to a vibrant and increasingly productive economy is an efficient credit allocation process -- the mechanism by which all forms of credit, and not just bank loans, flow to those who can make the best use of that credit. Do government regulations influence and therefore distort – intentionally or not – the allocation of credit within the U.S. economy?
Bank capital and liquidity standards, consumer lending requirements, lending rules enforced by the Consumer Bureau, the Community Reinvestment Act, and government-sponsored enterprises (notably Fannie Mae, Freddie Mac, and the Farm Credit System) among other federal programs steer credit to favorites based on government priorities. Designating large financial firms as “systemically important financial institutions” might diminish their role as independent credit providers and subject them to further government direction. Some argue that Federal Reserve monetary policy, which greatly influences all interest rates, has consequent credit-allocation effects. Where did this all come from, where is it going, and what it means for the future of the economy will be questions for the panel.
The Federalist Society's Corporations, Securities & Financial Services & E-Commerce Practice Group presented this panel on "Credit to Cronies: Government’s Heavy—IF Hidden—Hand" on Friday, November 14, during the 2014 National Lawyers Convention.