"`We need to create a resolution process that ensures the financial system can withstand the failure of a large complex financial firm,'' Paulson said in the speech excerpts distributed by the Treasury to reporters traveling with him in London.
The Treasury chief noted while there is a resolution mechanism for commercial banks, there is no such process for securities firms. Federal Deposit Insurance Corp. Chairman Sheila Bair has also urged that an agency be given power to take over and liquidate investment banks in an orderly manner. The FDIC has that power over lenders whose deposits it insures."
Let me confess that teaching Financial Institutions and Markets is not my favorite (although much better than its counterpart Money and Banking). That said, there are times that I wish I were still doing it. This is one of those times since the class room discussion over this would be very interesting. FTR I agree. I think large firms should be allowed to fail and if the current system is such that the cost of failure is too high, lowering it (either by allowing a more orderly liquidation or other means) is a worthy endeavor.