Roy Smith: May 2010 Archives

by Roy C. Smith

After a yearlong effort to get it right, the U.S. Senate passed a financial overhaul bill last week that actually weakens the government's ability to manage the next financial crisis. The House version passed last December is better, but not much.

Neither measure effectively addresses the problem of the 10 to 15 too-big-to-fail U.S. financial companies, which in the past occasionally have required bailouts to prevent their collapse and a consequent panic in financial markets.

Nothing in either bill requires banks to become smaller, or discourages them from becoming even bigger. Undoubtedly, many institutions will grow larger. After all, regulators already encouraged JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. to acquire large failing financial companies during the recent economic crisis. Very large banks have difficulty managing all the different risks they carry, and periodically one or another of them fails at it.

Read the full opinion editorial on Bloomberg.com.

About RegulatingWallStreet.com

The Dodd-Frank Act, signed into law in July 2010, represented the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression. Forty NYU Stern faculty, including editors Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, and Ingo Walter, provide a definitive analysis of the Act, expose key flaws and propose solutions to inform the rules’ adoption by regulators, in a new book, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (Wiley, November 2010).

About Restoring Financial Stability

Previously, many of these faculty developed 18 independent policy papers offering market-focused solutions to the financial crisis, which were published in a book, Restoring Financial Stability: How to Repair a Failed System (Wiley, March 2009).

About the Authors