“Bail-In” is GOOD for America
Bail-In transfers responsibility back to the depositor who can avoid being a
victim of bail-in by choosing his bank wisely.
Why do politicians (especially liberals) constantly seek to absolve people from
personal responsibility, which burdens taxpayers with regulatory costs and
There are four possibilities for
failed banks. As we say in bankruptcy, someone is going to take a haircut.
- Insurer. Small banks can avail themselves of
insurance (FDIC or similar) which was big enough to cover isolated small
failures. This created confidence in smaller lenders that may not have what
the public perceives as brute staying power. This was originally a good idea
to promote stability and growth of small institutions, but morphed (as
insurance frequently does) into irresponsibility. Guarantees were extended
miles beyond FDIC reserves in big-bank and systemic failure.
- Taxpayer. When large banks exceed the ability
of insurers to backstop a failure, taxpayers (thru Congress) may be
prevailed upon to mitigate the loss. There is logic in preventing a domino
effect, but NO constitutional authority, for transferring risk from
the foolhardy to the taxpayer. Government picking winners and losers has
resulted in more, not less, instability, and the free-market system no
longer benefits from purging losers.
- FED. Making up new rules as situations arise,
the FED created and lent $16Trillion (roughly equal to GDP) in the 2008
crisis and is still allowed to do so, penalizing savers with
eventually-worthless dollars. This is easy, surreptitious and deceptive, and
avoids Congressional responsibility. Again, the free-market system no longer
benefits from purging losers.
Personal responsibility demands that millions of depositors each evaluate
the strength, honesty, competence, size, and risk-aversion of whomever is
holding their money. In the 1960’s my grandfather warned me that FDIC did
not guarantee immediate compensation for depositor’s losses, it could take
years; therefore, be careful where you bank. I worked as a Trust Officer for
10 years in the 1970’s and saw this dynamic - making careful banking
decisions - from the inside.
If publicized, realization that
Bail-In places responsibility back on the depositor (where it belongs) should
quickly reduce the size of “too-big-to-fail” banks. Based on exposure to unacceptable
risk, alert depositors would move their accounts.
Instead of legislating to put the
burden back on taxpayers, why not just let the big banks continue to deal with
the consequences of supporting Dodd-Frank and the folks that voted for it? Do
not oppose the Bail-In provisions.
Thank you for considering and responding.