Resolution Authority Coming on Monday

Maybe, or so says reuters

Looks like the admin might put out a formal proposal on how to unwind the large Tier-1 Financial Holding Companies (FHC). So far, the admin's proposal has only made it more expensive to be a Tier 1 FHC. Well, we should say it does so "in theory", because as we've seen with the myriad of Fed/FDIC/Treasury support programs during an actual crisis go to disproportionately benifit Tier 1 FHCs, on top of the implicit support that in the event of future troubles.

The new draft bill is expected to take a tougher stance toward troubled financial firms than the administration's original plan, and may take out some language that would allow for temporary bailouts.

Giving the government "resolution authority" would serve as a rebuttal to the concept that some firms are too big to fail. Federal Reserve Chairman Ben Bernanke on Friday highlighted the need for this authority as well as other measures to reduce the likelihood that one firm could destabilize the financial system

Emphasis added was mine. That would probably be a good thing, although my guess is that the implicit bailout guarentee remains very storng unless explicitly taken of the table in the strongest of terms. We'll see what the actual specifics are...


NY Times gets more specific. Apparently some "living wills" on how to unwind the Tier 1 FHCs.

Setting up the equivalent of living wills for corporations, that plan would require that they come up with their own procedure to be disentangled in the event of a crisis, a plan that administration officials say ought to be made public in advance.

“These changes will impose market discipline on the largest and most interconnected companies,” said Michael S. Barr, assistant Treasury secretary for financial institutions. One of the biggest changes the plan would make, he said, is that instead of being controlled by creditors, the process is controlled by the government.

Wow! We'll what that actually means, the whole "being controlled by the government". So far, bank creditors have made out very swell, essentially getting a government guarentee. The key here of course is that there be a transparent, process with no uncertainty, so as to ensure discipline of relavent stakeholders, from boards/shareholders, bond holders, and regulators.