‘Too Big to Fail’ Policy Must End, F.D.I.C. Chief Says
Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, is adding to the debate over what may be the largest overhaul of the nation’s financial rules in decades.
In an interview on CNBC Friday morning, Ms. Bair said a main priority was ending the “too-big-to-fail doctrine” — the idea that a financial institution can become so large and interconnected that it must be propped up at all costs — and called the Obama administration’s proposed regulatory changes an “opening in the process” toward that goal.
She said she wanted a seat at the table in redrafting banking rules and reiterated her support for higher insurance fees for large banks that take big risks, an issue that has been a sore spot between her and John C. Dugan, the comptroller of the currency.
As the insurer of $6 trillion in bank deposits, the F.D.I.C. should be included in the decision-making process, Ms. Bair said Friday, especially when it comes to dealing with risks to the entire financial system.
“We would obviously like a seat at the table in decision making on systemic risk,” she said. “The F.D.I.C. has tremendous exposure to the system.”
Ms. Bair is seeking to create a separate insurance pool, similar to, but separate from, the deposit insurance premiums the F.D.I.C. currently collects from banks, which would be designed to curb systemic risk. The fee would be paid by large bank holding companies that engage in risky activities beyond traditional banking. Ms. Bair mentioned proprietary trading and over-the-counter derivative trading as two examples of activities that could warrant the payment of the new insurance fee.
Ms. Bair said the fees would create economic disincentives for banks to take on more risk and grow to a size that would make them too big to fail, thereby posing a risk to the whole financial system.
She also said that she is not likely to continue in her role at the F.D.I.C. past her five-year term, which ends in 2011.
“I am very much looking forward to getting back to more sane hours and more time with my family,” Ms. Bair.
– Cyrus Sanati"