Too big, didn’t fail: AIG was spared by last year’s bailout, but other financial giants may not share the same fate if they pose a threat to the economy.
Those financial institutions that viewed last year’s bailout as an object lesson that they can carry on as they wish so long as they’re “too big to fail” may have to adopt another approach. At least, that was the message Monday from Federal Reserve Chairman Ben Bernanke, if he makes good on words of warning to big banks. —KA
Federal Reserve Chairman Ben S. Bernanke said regulators should have the power to shrink banks that poses risks to markets, signaling support for proposals in Congress that let the U.S. cut the size of financial companies.
“The supervisors should be allowed by law to insist that the company divest itself or shrink its activities,” Bernanke said today in response to a question after a speech to the Economic Club of New York.
Congress is considering legislation giving government the power to force the breakup of a firm that has become so large that its failure in bankruptcy could threaten the economy. Lawmakers are seeking to avoid ad hoc actions such as last year’s $700 billion bailout of large firms, including New York-based insurer American International Group Inc.