“Title II of Dodd-Frank, which created the Orderly Liquidation Authority, made government guarantees for systemically important financial institutions explicit,” Subcommittee Chairman Patrick McHenry (R-NC) said. “And it is this explicit guarantee that not only provides an unfair advantage to the biggest and most powerful companies and institutions, but in doing so, has the potential to seriously distort our marketplace.”
Witnesses at the Wednesday hearing echoed those sentiments, saying TBTF remains a problem for America.
“Although the administration and the giant financial institutions themselves have insisted that Too Big to Fail has ended, a growing number of observers are concerned that the Too Big to Fail problem has not been solved at all. Those who hold this view include at least one member of the Board of Governors of the Federal Reserve, Daniel Tarullo, as well as others at the Fed,” David Skeel, a corporate law professor from the University of Pennsylvania, said.
John Taylor, a Stanford University professor and senior economics fellow at the Hoover Institutions, said TBTF firms “still seem to be enjoying a huge subsidy on their borrowing costs due to market expectations of bailouts,” which Taylor said increases the risk of financial instability.