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Let’s Pretend Dodd-Frank Works 

December 15, 2014
Wall Street Journal

The political left is outraged over a corner of Congress’s omnibus spending bill that rolls back a corner of the 2010 Dodd-Frank law. The premise of this made-for-media furor is that Dodd-Frank must never be altered because it ended taxpayer bailouts of giant banks. If only.

The Dodd-Frank provision at issue requires each bank holding company to move roughly 5% of its derivatives contracts from its commercial bank insured by the Federal Deposit Insurance Corporation into a separate subsidiary that is not insured by the FDIC. Therefore all the derivatives exposures would still belong to the same bank holding company, and roughly 95% would stay in the FDIC-insured depository institution.

The vaunted 5% are instruments that the politicians have decided are particularly risky. And we are asked by Sen. Elizabeth Warren (D., Mass.) to believe that having banks move them to another subsidiary of the same company represents “important protections that keep our economy safe.”

Read more: Wall Street Journal

 
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