Is the Federal Reserve on a Mission Impossible to end “too-big-to-fail?”

One of the primary goals of the Dodd-Frank Act, which was passed in the wake of the financial crisis, was to put an end to the notion that banks existed that were “too-big-to-fail.” One of the Federal regulators charged with fulfilling the mandate of this law is the Federal Reserve. If an editorial in the Wall Street Journal is any indication, John Cochrane, professor of finance at the University of Chicago Booth School of Business, is unimpressed with Federal Reserve’s latest effort.

“The Fed’s proposal opens with an eloquent ode to the evils of too-big-to-fail and moral hazard. And then it spends 168 pages describing exactly how it’s going to stop any large financial institution from ever failing again,” Cochrane writes in summing up the Fed’s recent proposal on enhanced prudential standards.

 

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