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Big change would effect “Too Big to Fail” banks

Big change would effect “Too Big to Fail” banks


Most of us remember all too painfully the financial crisis of 2007–2008, also known as the global financial crisis. Many economist believed it was the worst financial crisis since the Great Depression of the 1930s.  The crisis threatened the collapse of large financial institutions and investment banks, which was only prevented by the “bailout of banks by national governments.” These bank were deemed “too big to fail.”

The “too big to fail” theory says that-

Certain corporations, financial institutions and investment banks, are so large that their failure would lead to an even greater economic collapse around the world. to the greater economic system, and that they therefore must be supported by government when they face potential failure.

Now, a long hoped for change regarding which investment banks are designated as “too big to fail” could finally be coming this week.

Two years ago U.S. Representative Blaine Luetkemeyer of Missouri’s 3rd congressional district, put forth a bill to raise the minimum asset level under which a bank is considered “systemically important.” For smaller banks that minimum level was $50 billion dollars, as established by The Dodd-Frank reforms that resulted after the financial crisis.. Luetkemeyer‘s bill is coming to a floor vote soon and might be up for a full House vote Wednesday. Essentially, the measure is aimed at getting community and regional banks regulatory relief. Just 35 of 6,500 U.S. banks currently fit over the $50 billion tier. Another tier, above $250 billion, applies an “advanced approach” to regulation. The top 10 U.S. banks are subject to that level.

According to CNBC-

The Luetkemeyer measure strips that provision from Dodd-Frank and replaces it with “shall be deemed to have been the subject of a final determination” under the act. The level is likely to come up considerably from there, with some banking experts suggesting a number around $125 billion, though that ultimately would be determined through individual reviews.”

See more from CNBC below.

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