The federal watchdog in charge of tracking the bank bailout says it’s clear that “too big to fail” is here to stay. Credit-ratings agencies are rewriting the rules to account for future bailouts, points out TARP Inspector General Neil Barofsky.
“Since the 2008 bailout, (the banks have) only gotten bigger and more concentrated, larger in size,” Barofsky tells NPR.
“What’s really discouraging is, if you look at how the market treats them, it treats them as if they are going to get a government bailout, which destroys market discipline and really puts us in a very dangerous place,” he says.
Barofsky warned Congress in testimony this week that the financial regulation law backers said would end such taxpayer risk is falling short.
In testimony, he cited a Standard & Poor’s report that essentially admits the risk of new bank bailouts continues in spite of the Dodd-Frank reform law.
“We believe that banking crises will happen again. We expect this pattern of banking sector boom and bust and government support to repeat itself in some fashion, regardless of governments' recent and emerging policy response,” the S&P report states.
Barofsky told Congress the message is simple: Banks know they are off the hook.
“In short, S&P is telling the market that it does not believe that the Dodd-Frank Act has yet ended the problems of ‘too big to fail,’ and given the discounts that such institutions continue to receive, the market seems to be listening,” Barofsky said.
Darrell Issa, R-Calif., said that the watchdog report underlines the failures of government to face up to the consequences of the financial crisis, thus increasing future risk to the economy and to taxpayers.
“While the warning signs that led to the financial crisis were ignored or went unnoticed, right now we have a candid assessment warning of the potentially disastrous consequences of institutionalizing a ‘too-big-too-fail’ mentality that rewards risky behavior at the expense of the American taxpayers,” Issa said in a statement released to Bloomberg News.
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