Bair warns U.S. can break up uncooperative banks

* FDIC’s Bair: big firms must produce credible wills

* Slow economy no excuse to delay new capital standards

By Dave Clarke

WASHINGTON, Sept 2 (BestGrowthStock) – Regulators have the ability
to break up large financial firms if they fail to cooperate
with a key aspect of the new U.S. financial reform law, Federal
Deposit Insurance Corp Chairman Sheila Bair said on Thursday.

A portion of the law enacted in July requires the largest
financial institutions to submit a road map for breaking
themselves up, if necessary, so-called “living wills.”

Bair said firms that failed to produce credible resolution
plans could face divestiture of certain assets or operations.

“In other words, the government would be authorized to
break up the institution so that it no longer creates undue
risk to the financial system,” she told the Financial Crisis
Inquiry Commission in written testimony.

Bair also made the case for moving forward aggressively
with new international capital standards currently being
negotiated.

The 10-member, congressionally-appointed commission is
holding hearings this week on how to deal with firms that
become so big their failure endangers the financial system. The
panel is due to issue a report on Dec. 15 detailing the causes
of the financial crisis.

The Dodd-Frank law aims to solve the issue of allowing
banks and other financial companies from getting “too big to
fail” by allowing the government to seize troubled but
systemically important firms and wind them down.

She portrayed breakup for failure to produce a resolution
plan as a last resort that would only be taken if, over two
years, firms ignore other entreaties to produce a credible
plan. Before breaking up a firm, Bair said regulators could
impose stricter requirements for capital, liquidity and
leverage.

She also took aim at critics who say the struggling economy
is reason to postpone new capital requirements, including those
now being worked out as part of the international Basel III
negotiations.

While acknowledging that the economic recovery has been
slow, and stricter requirements will not be easy for banks to
implement, she said this was “no excuse for repeating
the mistakes of the past when it comes to responsible capital
requirements.”
(Reporting by Dave Clarke, Editing by Tim Dobbyn)

Bair warns U.S. can break up uncooperative banks