Too big to fail? President Obama doesn't want to hear that again
Too big to fail? This isn't a designation that the Obama administration wants to exist any more. New regulations proposed by President Obama would result in "leaner and simpler institutions that don't carry the weight of the system," according to the Associated Press.
Thus far, Congress has debated the administration's plan to put the Federal Reserve in charge of these companies, labeled "systemically significant." There has been less focus on the institutions and the financial system's "hierarchy." The administration's plans would place higher scrutiny on the larger companies and would have these banks hold more assets and more cash in order to buffer any downturn.
These banks would also have to plan for their own failure by drafting detailed descriptions of how to dismantle themselves without causing any ripples to the economy. Basically, they have to give an outline of how to pick over their bones should they fail.
According to the Associated Press, President Obama wants to make it "far less appealing to be so big." Some of the bigger banks my decide to pay the penalties, others may not. My question is, what happens to those that don't want to pay the price? Some analysts note that some of the top banks may have to "weigh the cost of meeting new regulations against the benefits of their size and reach."
However, will there be a penalty for not meeting the regulations? I am sure there will be ramifications, but what will they be? It obviously has to be more than a slap on the wrist, but how severe can the penalties imposed on any single bank be? Banks could make themselves just small enough to escape any penalties. In reality, this proposed legislation could lead to more corner-cutting than anything.