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The GSIBs Dilemma: Death By Hanging Or Dismemberment

Karen Petrou's memorandum to the Federal Financial Analytics Clients on the GSIBs dilemma: death by hanging or dismemberment.

TO: Federal Financial Analytics Clients

FROM: Karen Shaw Petrou

DATE: July 31, 2015

At Wednesday’s hearing on Dodd-Frank’s resolution protocols, conservative Republican Pat Toomey wanted to end big banks by hanging them in bankruptcy, while Sen. Warren preferred death by dismemberment. Any way you look at it, two senators who might well not agree on from which side the sun rises are united as one on a goal: killing GSIBs. A Presidential candidate, former Texas Governor Rick Perry, Thursday ideologically stood as one with fellow candidate, socialist Bernie Sanders to demand a slow, painful GSIB death by ever higher surcharges along with an array of other costly sanctions. It’s enough to make one feel sorry for the eight lonely, not-so-little GSIBs. After all, they are far closer to resolvability under bankruptcy than pretty much any other giant financial institution, with this hard-won improvement since 2010 coming at considerable cost. Big banks may still be too big to die by their own hand, but the death of any non-bank SIFI would torture the rest...