'Too Big To Fail' Banks: Bigger, Badder… and Here To Stay

Nearly six years after the financial crisis of 2008 that helped spur a global economic meltdown, federal regulators in the U.S. on Tuesday declared that much-touted reforms designed to curb the threat of so-called ‘Too Big To Fail’ banks have done not nearly enough to end the prospect that taxpayers will be left holding the bag when the next bubble bursts or a new wave of Wall Street disasters strikes.

Presented in a joint review by the Governors of the Federal Reserve System and the Board of Directors of the Federal Deposit Insurance Corporation (FDIC), the two financial regulatory bodies say that resolution plans (so-called “living wills”) submitted by eleven large banks—which included Wall Street titans Bank of America, Bank of New York Mellon, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street Corp., and UBS—shared common flaws that make the institutions a continued threat to the overall economy.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010, included provisions meant to avoid a repeat of what happened in 2008, when a collapse of the mortgage market sent a shockwave through the financial services industry and U.S. tax dollars were used to backstop the nation’s largest banks from defaults that Wall Street claimed would cause even more severe damage to the economy. Portions of Dodd-Frank compelled these large institutions to create ‘resolution plans’ so that in the event of a similar crisis, the banks would be dismantled in a more orderly fashion and large-scale government intervention would not be necessary—nor in theory, allowed.

The problem, according to the Fed and the FDIC, is that the plans put together by the big banks simply won’t work.

“Each plan being [put forth] is deficient and fails to convincingly demonstrate how, in failure, any one of these firms could overcome obstacles to entering bankruptcy without precipitating a financial crisis,” said FDIC vice chairman Thomas Hoenig in a statement. “Despite the thousands of pages of material these firms submitted, the plans provide no credible or clear path through bankruptcy that doesn’t require unrealistic assumptions and direct or indirect public support.”

As the Huffington Post‘s  Shahien Nasiripour explains: