Oct. 10 (Bloomberg) -- Here we go again. Major shocks
potentially threaten the solvency of some of the world’s largest
financial institutions. Concerns grow over the ability of
European leaders to shore up their banks, which are reeling from
a sovereign-debt crisis. In the U.S., the shares of some large
banks are trading at less than book value, while creditor
confidence crumbles.
Private conversations among economists, regulators and fund
managers turn naturally to so-called resolution powers -- the
expanded ability to take over and wind down private financial
companies granted to federal regulators by the Dodd-Frank
financial reform law. The proponents of these powers, including
Tim Geithner and Henry Paulson, the current and former U.S.
Treasury secretaries, argue that the absence of such authority
in the fall of 2008 contributed to the financial panic.
According to this line of thought, if only the Federal Deposit
Insurance Corp. had the power to manage the orderly liquidation
of big banks and nonbank financial companies, the government
could have decided which creditors to protect and on what basis.
This would have helped restore confidence, it is argued.
