WASHINGTON — The government should use special assessments from systemically important financial institutions to resolve problems at troubled competitors, according to Federal Deposit Insurance Corp. Chairman Sheila Barr.
The authority of those big institutions’ primary regulators to supervise them should be preempted if the institutions run into trouble, and the “resolution authority” should have the power to sell troubled institutions’ assets promptly, Bair said.
Bair made her comments today at a Senate Banking Committee hearing on regulation of institutions that are “too big to fail.”
Bair assured members of the committee that the FDIC has the ability to “resolve” troubled banks and non-banks.
But creating a “resolution regime” that applies to any financial institution that becomes a source of systemic risk “should be an urgent priority,” Bair testified.
Putting the authority in place quickly could encourage large financial firms to put more emphasis on dealing with troubled assets, Bair said.
“The purpose of the resolution authority should not be to prop up a failed entity indefinitely, but to permit the swift and orderly dissolution of the entity and the absorption of its assets by the private sector as quickly as possible,” Bair said.
Bair also proposed creating a systemic risk council to address issues that pose risks to the broader financial system.
The body should include the Treasury Department, the FDIC, the Federal Reserve Board, the Securities and Exchange Commission, and “other prudential supervisors as well,” Bair said.
When dealing with troubled financial giants, federal agencies should have broad authority, including the power to provide analytical support, develop prudential policies, and “mitigate developing risks,” Bair said.
The power to “mitigate developing risks” appears to imply the power to preempt the authority of the primary regulator.