William Armstrong

The Debate over Banking Reform, Part 2

I fully agree. The TBTF box is not a home. It is a place where a financial institution would go temporarily where the authorities could keep a good eye on it while it takes actions to reduce its size and riskiness. If it is so far gone that it cannot be rehabilitated, then the box is a place to conduct an orderly liquidation.

Once the rules of the regulatory regime that I describe are applied and understood, I believe that very few institutions would end up tripping the wire to be declared TBTF, since the consequences of going to the penalty box would substantially wipe out the shareholders.