Too Big to Fail: The Path to a Solution

by Sabrina I. Pacifici on August 13, 2013

Too Big to Fail: The Path to a Solution - A Report of the Failure Resolution Task Force of  the Financial Regulatory Reform Initiative of the Bipartisan Policy Center, May 2013

“This report concludes that the FDIC’s SPOE [single-point-of- entry] recapitalization strategy, whether carried out under OLA or the Bankruptcy Code, should succeed in solving a critical part of the too-big-to-fail problem, by allowing any SIFI to fail without resorting to taxpayer-funded bailouts or  a collapse of the financial system, if the recommendations contained in this report are implemented. With SPOE recap as an option, we do not believe that government officials  would have the temerity to select bailout, especially since the statute expressly prohibits  that choice. Among other things, the SPOE recapitalization strategy eliminates virtually all of  the material impediments to a cross-border resolution of a G-SIFI by keeping the group’s  domestic and foreign operating subsidiaries, including their foreign branches, out of resolution or other insolvency proceedings. The remaining impediments appear relatively minor and reasonably manageable with advanced planning by the FDIC or SIFIs themselves.  Thus, we can solve the “to fail” portion of too-big-to-fail, which in our opinion solves the entire problem.”

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