September 02, 2019
The New “Too Big to Fail” Rule Proposal
Ever since the collapse of the Lehman Brothers financial organization, the deepest and most severe event of the 2007-2009 financial crisis, which was followed by a substantial taxpayer-funded bailout of a number of institutions, Americans have been wary of the concept of “too big to fail.” A number of regulatory actions were taken in the following period, including Dodd-Frank oversight.
In April, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, and the Office of the Comptroller of the Currency put forth a potential rule that would be designed to “limit the interconnectedness of large banking organizations and reduce the impact from failure of the largest banking organizations.”
Rather than any form of replacement for existing regulatory safeguards, this rule would be designed to supplement such measures taken by banking agencies with the goal of keeping the cap on how much these large banking organizations connect with one another. Global systemically important bank holding companies (also known as GSIB), are by far the most sizeable of banking organizations. These institutions are required by the Federal Reserve’s total loss-absorbing capacity (TLAC) rule to issue debt with particular features, which would be utilized for recapitalization of the holding company in the case of bankruptcy or if it were determined to be too big to fail.
The new rule would aim to disincentivize GSIBs (as well as “advanced approaches” banking organizations) from buying large quantities of TLAC debt by insisting that these organizations hold additional capital as against any large holdings of TLAC debt. The effect of this would be to lower the degree of interconnectedness between these large banking organizations, and decrease the impact on the financial system from any failure by a GSIB.
The further protections this would offer with respect to the housing industry would come in the form of preservation of existing well-functioning infrastructure in the housing finance system; creation of a number of new levels of protection between taxpayers and mortgage credit risk; locking in of uniform, responsible standards in underwriting; among other benefits.
This makes buying an even surer bet. When you buy a house you want to be sure your purchase comes with clear title, in order to avoid problems at closing. Topouzis & Associates, P.C. is your bulwark against problems of the past. We do title searches and ensure you are gaining clear title to your property—and we back our services with offerings of title insurance (click here), in case someone along the line of ownership did something that will weaken your claim to title at some point in the future.