Kanjorski's Break Up Authority Amendment


As the House Financial Services Committee marks up its financial stability regulation proposal, one amendment is getting a lot of attention. Rep. Paul Kanjorski (D-PA) has proposed (.pdf) to provide the plan's systemic risk council the authority to break up firms that pose too great a risk to the economy. In my reading of the House plan the Federal Reserve would already have a weak version of this power. Kanjorski's suggestion would explicitly allow the council to break firms up. The Senate's proposal, more explicitly provides this power to the systemic risk agency it would create. For the House's plan to really seek to end to the too big to fail problem, Kanjorski's amendment is vital.

Both House and Senate plans already provide resolution authorities. The general idea there is large, interconnected firms would provide failure plans to the regulators, which would be followed if they collapse. It might sound like this would prevent future bailouts, but that isn't necessarily true.

This assumes that the failure plans would actually work -- but what if they won't? What if a firm is so large and so intertwined in the market that its collapse would necessarily throw the financial industry into chaos? In that case, resolution wouldn't work, and the firm would have to be bailed out.

One option to deal with those firms is to treat them like utilities. I think that's crazy from every standpoint. Taxpayers shouldn't be supporting financial companies who might make poor decisions, and those firms almost certainly don't want to be micromanaged by the government.

The only other solution I can see would be if the systemic risk regulator has the power to break up firms if their resolution would not work in practice. Kanjorski's amendment doesn't take this authority lightly. It stresses breakup as a last resort, even noting the concern of international competitiveness. I don't think the intent here is to punish big banks -- and it shouldn't be. It supports the idea that if a bank can fail without a major market disturbance, then it should not be broken up no matter how large.

But make no mistake: you do not solve the too big to fail program unless you provide the systemic risk regulator the power to break up firms that cannot be resolved without taking the economy down with them. This is the only way to be sure to get the government out of the business of bailing out banks. A resolution authority is a good first step, but it will be useless in addressing too big to fail without breakup power also provided.

Jump to comments
Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
Get Today's Top Stories in Your Inbox (preview)

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus


Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.


What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.


Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.


Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.


Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.


The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air



More in Business

Just In