Did Dodd–Frank miss the mark? Financial experts’ and regulators’ perspectives on resolution plans

Abstract

‘Not credible’. This statement was included in joint press release by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation’s Board of Directors as part of the agencies joint summary statement of their reviews of the second round of resolution plans (RPs) submitted by 11 large banking organizations on 5 August 2014. The Dodd–Frank Wall Street Reform and Consumer Protection Act enhanced the powers bestowed on these agencies, to include oversight of the newly required, annual RPs, in an effort to reduce the risk posed when financial institutions become ‘too big to fail’, protect US taxpayers from the need for government bailouts, and protect consumers from abusive financial services practices. However, these initial RPs missed the mark. Moving beyond regulatory feedback, this article is the first to provide an empirical assessment of the perspectives of those expert closets to RPs: employees of the affected institutions that must submit RPs, who are responsible for their creation and maintenance, as well as of the federal regulators who oversee them. The latter emerge as far more sceptical than the former about the ability of RPs to protect US taxpayers. The main deficiencies relate to a lack of confidence that the government could avoid bailing out large institutions, regardless of the RPs; the lack of global authority; a lack of experience among regulators with unwinding large, complex banking organizations; and insufficient clarity in the regulatory guidelines.