We’ve been pretty disappointed by regulators who keep talking about a future of no more financial failures, rather than a future where financial firms can fail without destroying the entire system. The latter, ultimately, is what we need to be striving for. Failure is good.
At least one top regulator, the much-vilified Sheila Bair, seems to grasp this. The FDIC chief spoke at the Economic Club of New York today:
CNN Money: We need an effective resolution mechanism, not a get-out-of-jail free card,” Bair said, speaking to an audience that included many high-profile members of the financial services community.
“The sooner we modernize our resolution structure, the sooner we can end too big to fail.”
Many, including Bair, have argued the lack of such a system has made it difficult to resolve many of the troubles facing the nation’s financial services sector. As a result, the government has often been put in the uncomfortable position of picking so-called “winners” and “losers”, and leaving taxpayers footing the bill.
Granted, we’re not totally sold on what she has to say. In keeping with the stereotype that she’s power hungry, she insists that the FDIC is totally up the job of resolving large and small financial institutions. We’re a little sceptical.