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Narrow Banking: An Overdue Reform That Could Solve The Too-Big-To-Fail Problem And Align U.S. And U.K. Regulation Of Financial Conglomerates, Arthur E. Wilmarth Jr.
Narrow Banking: An Overdue Reform That Could Solve The Too-Big-To-Fail Problem And Align U.S. And U.K. Regulation Of Financial Conglomerates, Arthur E. Wilmarth Jr.
GW Law Faculty Publications & Other Works
This article is based on testimony presented on December 7, 2011, before the Subcommittee on Financial Institutions and Consumer Protection of the Senate Committee on Banking, Housing, and Urban Affairs. The article provides an update and extension of my previous work showing that: (1) the U.S., U.K. and other developed nations provided enormous subsidies for “too-big-to-fail” (“TBTF”) financial institutions during the financial crisis, thereby creating dangerous distortions in our financial markets and economies; (2) large financial conglomerates follow a hazardous business model that is riddled with conflicts of interest and prone to speculative risk-taking; (3) the Dodd-Frank Wall Street Reform …
Reforming Financial Regulation To Address The Too-Big-To-Fail Problem, Arthur E. Wilmarth Jr.
Reforming Financial Regulation To Address The Too-Big-To-Fail Problem, Arthur E. Wilmarth Jr.
GW Law Faculty Publications & Other Works
The ongoing financial crisis has revealed fundamental weaknesses in the regulatory systems of the United States, the United Kingdom and other European nations. In particular, publicly-funded bailouts of major banks have confirmed that “too big to fail” (TBTF) subsidies distort economic incentives and encourage excessive risk-taking by large, complex financial institutions (LCFIs). Accordingly, the primary goals of regulatory reform must be (i) to eliminate, or at least greatly reduce, TBTF subsidies and (ii) to force LCFIs to internalize the risks and costs of their activities.
After surveying the causes and consequences of the financial crisis, this article proposes five regulatory …