Why “Bail-In” is GOOD for America


A 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 guarantees?

There are four possibilities for failed banks. As we say in bankruptcy, someone is going to take a haircut.

  1. 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.
  2. 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.
  3. 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.
  4. Depositor. 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.

Cocoa Beach area RealtorRichard Webb 321-480-5514
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