FDIC chief says financial regulatory reform bill ends taxpayer-funded bailouts

During a conference call Thursday morning with reporters, Republican staffers noted several provisions that would allow for the FDIC and the Treasury Department to decide which failing or struggling firms to help. They said the bill also anticipates that more bailouts will be needed down the road. 

There’s a moral hazard with the language that would allow financial firms to continue to take on risk knowing there is help available, the staffers said. 

In a liquidity crisis that the FDIC and the Federal Reserve could provide systemwide support in “terms of liquidity support — lending and debt guarantees — but even then, a default would trigger resolution or bankruptcy,” Bair said. 

The FDIC has always chosen creditors to pay back in a resolution, Bair explained. She said when bridge bank is set up when a bank is closed to maintain critical functions designed to “preserve value of assets to benefit all creditors.” That doesn’t include bondholders or shareholders, she said. 

“We will keep them running while your shareholders and debtors take all your losses,” she said. “And oh, by the way, we are getting rid of your board and you, too. The whole idea is to get market discipline back.”