Sheila Bair: Dodd-Frank really did end taxpayer bailouts

By Mike Konczal, Published: May 18, 2013 at 10:27 am

Sheila Bair, the hard-charging former director of the Federal Deposit Insurance Corporation, stands at the center of three of the biggest debates in Dodd-Frank implementation.

As someone who knows the FDIC — which is actually the agency that takes down failing banks — she’s in an unusually good position to know whether the law’s resolution authority will work. These are the new powers the FDIC has in Dodd-Frank to impose losses and fail a financial firm (it’s what Barney Frank called “death panels” for financial megabanks). Bair has also been a vocal advocate for higher leverage requirements, which has animated the debate over the recent Brown-Vitter bill. And she was recently critical of the efforts by the House Financial Services Committee to repeal parts of Dodd-Frank that push swaps out of bank holding companies, even though she original opposed a stricter version of that language back in 2010.

We talked about all three of these topics; our discussion is slightly edited for clarity.

Mike Konczal: To start, how do you think Dodd-Frank is unfolding? Specifically, the rules for Title II and “resolution authority.”

Sheila Bair: We finalized most of the rules we could write on our own before I left, though they are working on further clarifications. I think the FDIC has come up with a viable strategy for resolving a large complex financial institution. This is their strategy of using a single-point-of-entry. The FDIC will take control of a holding company and put creditors and shareholders into a receivership where they, not taxpayers, will absorb any losses. This will allow the subsidiaries to remain operational, avoiding systemic disruptions, as the overall entity is unwound over time.