“It was less than a decade ago yet it seems many people have forgotten what led Congress to write and pass Wall Street reform legislation in the first place. In 2008, Lehman Brothers’ collapse caused enough uncertainty across the financial system to trigger a run on nearly every other bank, requiring a $700 billion taxpayer bailout. The resulting financial chaos destroyed millions of jobs, devastated home values, and froze lending to consumers and small businesses. Many Americans, in fact, are still struggling to recover.
“To ensure that taxpayers don’t end up on the hook for another bank bailout, Congress passed Dodd-Frank legislation. It requires banks to abide by regulatory standards that protect the financial system, hold more capital, and create living wills so they can responsibly pre-plan their bankruptcies. While bankruptcy is the preferred route for resolution, we also created a backup option called Orderly Liquidation Authority (OLA) at the FDIC. In that process, a bank’s shareholders would be wiped out, the management would be fired, and the bank would be wound-down by the FDIC in a safe manner to avoid a repeat of the Lehman-inflicted chaos. This process has become the model for foreign countries to wind-down their megabanks, and since 2010, our regulators have worked diligently with the Bank of England and other foreign counterparts to ensure a global megabank can be resolved without tapping taxpayer dollars.
“While some targeted relief to community banks is appropriate, we cannot afford to undo Dodd Frank’s essential safeguards.”