CLE Materials for Panel #1 - George Washington University Law ...

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4/1/2011 1:11 PM
1054 OREGON LAW REVIEW [Vol. 89, 951
their effectiveness on the same federal regulatory agencies that failed
to stop excessive risk taking by financial institutions during the
booms that preceded both crises. 448 As Johnson and Kwak observe:
[S]olutions that depend on smarter, better regulatory supervision
and corrective action ignore the political constraints on regulation
and the political power of the large banks. The idea that we can
simply regulate large banks more effectively assumes that
regulators will have the incentive to do so, despite everything we
know about regulatory capture and political constraints on
regulation. 449
Moreover, the future effectiveness of the FSOC is open to serious
question in light of the agency turf battles and other bureaucratic
failings that have plagued similar multiagency oversight bodies in
other fields of governmental activity (e.g., the Department of
Homeland Security and the Office of the Director of National
Intelligence). 450
As explained above, Dodd-Frank’s most promising reform for
preventing future TBTF bailouts—the OLA—does not completely
shut the door to future rescues for creditors of LCFIs. The FRB can
provide emergency liquidity assistance to troubled LCFIs through the
discount window and (perhaps) through “broad-based” liquidity
facilities (like the Primary Dealer Credit Facility) that are designed to
help targeted groups of the largest financial institutions. The FHLBs
can make secured advances to LCFIs. The FDIC can use its Treasury
borrowing authority and the SRE to protect uninsured creditors of
failed SIFIs and their subsidiary banks. While Dodd-Frank has
undoubtedly made TBTF bailouts more difficult, the continued
existence of these avenues for financial assistance indicates that
Dodd-Frank is not likely to prevent future TBTF rescues during
episodes of systemic financial distress. 451
448 See supra notes 254–60 and accompanying text.
449 JOHNSON &KWAK, supra note 137, at 207.
450 See, e.g., Dara Kay Cohen et al., Crisis Bureaucracy: Homeland Security and the
Political Design of Legal Mandates, 59 STAN. L.REV. 673, 675–78, 718–20, 738–43
(2006) (analyzing organizational problems and operational failures within the Department
of Homeland Security); Dana Priest & William M. Arkin, A Hidden World, Growing
Beyond Control, WASH. POST, July 19, 2010, at A1 (discussing organizational problems
and operational failures within the Office of the Director of National Intelligence); Paul R.
Pillar, Unintelligent Design, NAT’L INTEREST, July–August 2010 (same).
451 See supra Part V.C. Other commentators agree that Dodd-Frank will not prevent
future bailouts of TBTF institutions. See, e.g., Peter Eavis, A Bank Overhaul Too Weak to
Hail, WALL ST. J., June 26, 2010, at B14; David Pauly, Congress Puts Out ‘Sell’ Order on
American Banks, BLOOMBERG (June 28, 2010), http://www.bloomberg.com/news/2010