Too Big to Fail Means “Safe”?

In today’s episode of Regulatory Roulette, we’re reminded of the phrase “Too Big To Fail” and what it meant in the darkest days of the Global Financial Crisis.  This phrase was used to discuss the biggest and nastiest of our systemic issues as Lehman Brothers failed and AIG, Citigroup and others teetered before TARP ultimately came to the rescue.  Today, it’s means something different. 

With Dodd Frank’s spirit clearly in question after the SVB depositor rescue, too big to fail now means, someone will save us if we’re invested in something systemically important.  Depositors have moved a tremendous amount of money around over the last several weeks and the ultimate result is that the big got bigger (clearly not the intention of Dodd Frank in 2010).

This should bother all of us for two reasons:

1.  This will obviously encourage consolidation among banks. 

2.  It will mean that the risk in banking shifts from the shareholder to the taxpayer. 

This industry has proven time and again that it is risk seeking.  Risk seeking entities, backed by taxpayer dollars should not exist, but here we are because we can’t let things fail and everyone gets a participation trophy. 

Source: Axios