Perspective: Regulators with no democratic accountability keep bailing out banks and big depositors — at the cost of billions to taxpayers
failed regulation and expensive public bailouts. While agreeing on hardly anything else, it seems Democrats and Republicans have found common ground in condemning bank executives for “hubris, entitlement, greed” and “negligence” in the bank failures that have occurred since March.
A crucial episode dates to 1984, when doubts emerged about the value of Continental Illinois Bank’s large commercial and industrial lending operation. That spooked wholesale creditors and depositors, who rapidly withdrew their funds. The FDIC decided that, due to Continental Illinois’ size and connections to other major financial institutions, it was necessary to ensure deposits without limit and make all creditors whole.
In 1991, Congress finally balked and tried to set limits on these bailouts through the FDIC Improvement Act. But the bill failed to do so in a meaningful way because regulators scared members of Congress into giving them flexibility in the future to deal with what became known as “systemic risk.
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