The Obama administration's proposed overhaul of financial rules preserves the policy of "too big to fail," and could will lead to future bailouts.
Former Federal Reserve Chairman Paul Volcker said Thursday that by designating some companies as critical to the broader financial system, the plans create an expectation that those firms enjoy government backing in tough times. That implies those financial companies "will be sheltered by access to a federal safety net," he said.
In testimony prepared for the House Financial Services Committee, Volcker said emergency measures by the Fed, Treasury and Congress during last year's financial crisis created the expectation that the government would step in to protect failing companies, their bond holders and stockholders.
[Volcker] said he opposed bailouts of insurance firms like American International Group Inc., automakers' finance arms and others.
"The safety net has been extended outside the banking system," Volcker said. "That's what I want to change." -- Yahoo Finance
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