{"id":21317,"date":"2014-11-06T05:22:22","date_gmt":"2014-11-06T04:22:22","guid":{"rendered":"http:\/\/www.w-t-w.org\/en\/?p=21317"},"modified":"2014-11-06T05:27:43","modified_gmt":"2014-11-06T04:27:43","slug":"the-living-will-provision-of-dodd-frank","status":"publish","type":"post","link":"https:\/\/www.w-t-w.org\/en\/the-living-will-provision-of-dodd-frank\/","title":{"rendered":"The “Living Will” Provision of Dodd Frank"},"content":{"rendered":"
Is this a solution to ‘too big to fail?”<\/p>\n
Jeffrey M. Lacker, had of the Federal Reserve of Richmond, spoke on ‘too big to fail’<\/p>\n
Here are his main points:<\/p>\n
\n
\u201cToo big to fail\u201d results from two mutually reinforcing conditions: Investors feel protected by an implicit commitment of government support, and policymakers feel compelled to provide that support to avoid a disruptive adjustment of expectations.<\/li>\n
The origins of too big to fail can be traced back to the introduction of federal deposit insurance in 1933. The problem was exacerbated by a series of rescues by the Federal Reserve and the FDIC that began in the 1970s, and by policymakers’ actions during the financial crisis of 2007\u201308.<\/li>\n
The Orderly Liquidation Authority created by the Dodd-Frank Act retains many of the flaws of ad-hoc pre-crisis practices and does little to improve creditors\u2019 incentives to monitor risk-taking.<\/li>\n
A better strategy for ending too big to fail is the provision in the Dodd-Frank Act requiring large financial firms to prepare \u201cliving wills\u201d detailing how they could be resolved under the Bankruptcy Code.<\/li>\n
Resolution planning is difficult work, but living wills must be credible in order for policymakers to commit to using them rather than relying on government backstops.<\/li>\n<\/ul>\n
![\"Living](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2014\/11\/Living-Wills.jpg\")
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