Academic journal article ABA Banking Journal

Time for Too-Big-to-Fail to Join the Edsel

Academic journal article ABA Banking Journal

Time for Too-Big-to-Fail to Join the Edsel

Article excerpt

"Too big to fail" is on the chopping block-if ABA has anything to do with it.

Or, as ABA's president, Kelly Holthus, said at the ABA National Conference for Community Bankers in Scottsdale, Ariz.:

"Read my lips on this one: Too-big-to-fail is neither right, just, nor fair ABA opposes it. We will work to eliminate it. And we think we know how to eliminate it.

Special committee. Holthus, president and CEO, First National Bank of York, Neb., was referring to the new recommendations of ABA's Deposit Insurance Reform Committee. Those recommendations, which include a rejection of the too-big-to-fail doctrine, were formed after many months of deliberation and analysis by the committee's 19 members Holthus himself is an ex officio member of the committee, which includes bankers from around the country, The bankers come from small, regional, and money-center banks.

The group took its recommendations to the ABA Board of Directors and the ABA Government Relations Council for approval. Its work was also thoroughly reviewed in early March by delegates to the ABA-sponsored Banking Leadership Conference. Representation in that body includes the elected leaders of all the state bankers associations. All three groups approved the proposal.

ABA's developing position on deposit insurance centers on the goal of fairness for call banks, regardless of size. That's no easy goal, given the complexities of deposit insurance and the potential for industry division.

Committee members deserve much praise for the way they're tackling the myriad associated issues. Their focus on uniformity in the closing and liquidating of failed banks should help to resolve most, if not all, of the remaining issues. And the group's proposal that losses for uninsured depositors and unsecured creditors should be limited to the average cost of bank failures over time means that market discipline will replace too-big-to-fail. …

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