Logo

Washington, Oct 29 -

During today's Financial Services Committee hearing on "too big to fail" and systemic regulation Rep. Ed Royce, a senior member of the committee, issued the following opening statement:

"Apparently, the "too big to fail" model is too hard to kill.

"I thought we would have learned our lesson from Fannie and Freddie.  Prior to their failure, it was widely perceived that the government would be there to bail them out when they ran into trouble. That implicit guaranty translated into real advantages for the GSE's in terms of lower cost of capital, which facilitated their dominance in the marketplace.

"The explicit backstop already provided to the largest of our financial institutions is having an eerily similar effect. A recent study by the Center for Economic and Policy Research found that the too-big-to-fail doctrine has translated into a tangible subsidy for the 18 largest bank holding companies worth $34 billion per year; with a 78 basis points lower cost of capital when compared to their smaller competitors.

"Instead of granting permanent bailout authority and institutionalizing the too big to fail doctrine -- which this legislation does -- we should set up a structure that will allow for an orderly liquidation of an institution through an enhanced bankruptcy without the use of government funds."

###