How Dodd-Frank Spurs Big Banks To Add Systemic Risks

Dodd Frank

The race is on for banks to make themselves too big to fail. Of course “too big to fail” just means that when they do fail you and I have to pay for them one way or another. And the designation only encourages riskier bets by banks which then in turn make it more likely that a “too big to fail” bank will indeed fail.

(From IBD.com)

The fixed costs of complying with the law are having the unintended consequence of benefiting a handful of massive banks that can absorb the costs through volume.

Adding to the incentive to get bigger fast is to be “too big to fail”, which in the aftermath of the 2008 and 2009 bank bailouts has become an unofficial doctrine in Washington and Wall Street. A financial institution is said to be “too big to fail” if it is so large and so interconnected with other banks and financial intermediaries that its failure would impose systemic risks to the entire financial system. If a bank reaches this size, the government would step in and provide a financial bailout, as happened with TARP in 2008.*

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*The TAXPAYER would provide the bailout.