Monday, October 10, 2011

Is the FDIC going to take pre-emptive action and use its resolution authority?

Simon Johnson has written a series of interesting columns on the FDIC's resolution authority under Dodd-Frank (see here and here).

In these articles, he asks the basic question of will the US Treasury work with the FDIC when it seeks on a pre-emptive basis to "liquidate a troubled, but not yet collapsed, megabank?"

Professor Johnson then offers a definition of when pre-emptive action should be taken.  Pre-emptive action should be taken "before losses grow so large that they threaten to rock the macroeconomy."

Do the largest financial institutions in the US currently meet Professor Johnson's description of when pre-emptive action should be taken?

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