Treasury’s Miller Says Too-Big-To-Fail Bailouts Are Over

U.S. is finished rescuing financial institutions, no matter how big, she says.

U.S. banks won’t be rescued by taxpayers, U.S. Treasury Department official Mary Miller said, rebutting investor skepticism that some lenders are too large to be allowed to fail.

“A common use of the too-big-to-fail shorthand is the notion that the government will bail a company out if it is in danger of collapse because its failure would otherwise have too great a negative impact,” Miller, the Treasury’s undersecretary for domestic finance, said in remarks prepared for a speech in New York late yesterday. “With respect to this understanding of too-big-to-fail, let me be very clear: It is wrong.”

A debate from Washington to Wall Street over whether the Dodd-Frank financial overhaul law ends bailouts was re-energized after U.S. Attorney General Eric Holder said last month that the size of the largest banks has made it difficult for the Justice Department to bring criminal charges when there is wrongdoing.

“No financial institution, regardless of its size, will be bailed out by taxpayers again,” Miller said at a conference in New York. “Shareholders of failed companies will be wiped out; creditors will absorb losses; culpable management will not be retained and may have their compensation clawed back.”

Miller said “the evidence is mixed” on whether large banks have lower borrowing costs because of the belief that the government would bail them out if necessary.

Miller also said the Financial Stability Oversight Council, a group of regulators charged with preventing another financial crisis, is “nearing the end of the process” to determine whether to subject a group of non-bank companies to Federal Reserve supervision.

American International Group Inc., Prudential Financial Inc. and General Electric Co.’s finance unit have all said they are in the final stage of review by the council, or FSOC.

Miller said on March 4 that the FSOC may vote “in the next few months” on whether to designate some companies as systemically important, which puts them under Fed supervision.


Bloomberg News

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