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Ex-FDIC Chair Bair: There should never be another bailout on Wall Street again

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Ex-FDIC Chair Bair: There should never be another bailout on Wall Street again

Former Federal Deposit Insurance Corp. Chair Sheila Bair said there should never be any bailouts of Wall Street banks again, arguing these only benefited them instead of the general economy.

Bair wrote in a May 24 opinion piece for The Washington Post that misbehaving financial institutions should face the consequences of their actions, whatever the market deems the consequence to be. She doubts that the public will ever accept the argument that bailouts were meant to help Main Street given big banks were still profitable post-crisis and started handing out massive paychecks to their executives again at the end of 2009.

"If the financial sector is really that unstable, we should just break up the big banks now — my preference — or nationalize them," Bair argued, saying bailouts should never be normalized and that U.S. democracy cannot survive another crisis of a similar scale.

She also criticized current regulators' efforts of easing certain post-crisis regulations, arguing banks should even build more capital buffers to prepare for the next economic downturn and that their efforts mirror those of previous regulators which tried to roll back rules just before the crisis happened.

The Federal Reserve in March repealed the qualitative portion of its annual stress tests for all but five banks in operating in the U.S., arguing large banks in general have made significant strides in improving capital planning processes but warning they can still be slapped with enforcement actions or a deficient supervisory rating should these processes be weakened.

The Fed in April proposed to exempt various domestic banks with assets between $100 billion and $250 billion from filing living wills, a requirement under the Dodd-Frank Act detailing how large banks will deal with situations such as bankruptcy, saying these banks pose little threat to financial stability in general. It also proposed to have the eight U.S-based globally systematically important banks to submit living wills every two years, instead of every year, and also have the option to submit plans which contain fewer details instead of the usual full resolution plan every other cycle and have certain large banks to submit living wills every three years.

Lael Brainard was the sole dissenting vote in both of these proposals, voicing out fears these could potentially lead to a less-safe financial system overall.

Federal regulators have also rolled out their proposed changes on the Volcker Rule, another Dodd-Frank rule which brought more restrictions on proprietary trading. They proposed to cut compliance requirements for all but those with at least $10 billion in trading assets and liabilities and replace the "rebuttable presumption standard", which generally banned financial positions held for fewer than 60 days, with an accounting-based rule that if companies have fluctuations above $25 million over a 90-day period, they will have to prove they are complying with proprietary trading restrictions.

However, both pro-Volcker Rule proponents and banks criticized this proposal, with banks saying this will unintentionally lead to negative consequences and less flexibility in managing their balance sheets while the rule's proponents said the change will allow banks to go scot-free as long as they are under the $25 million threshold.