For your weekend reading pleasure: Thomas Hoenig, Vice Chair of the Federal Reserve, made a speech this week arguing that the living wills provisions in Title I of Dodd-Frank were critical to ending financial bailouts. He concludes:
"In theory, Title I provisions to resolve these firms make the system safer. In practice, it will be the industry and its regulators that make the law work."
Sing It loud!
But calling on industry and policymakers to make the law work points to the biggest problem with (arguably) the only really novel policy solution in post-crisis financial reform: where are the incentives for financial firms to get their living wills right? Unfortunately, we might not know if living wills work until firms actually fail. One fascinating item I learned in Mehrsa Baradaran's great forthcoming article Regulation by Hypothetical: the living wills that the largest Wall Street banks have produced appear to all have been drafted by the same team at Davis Polk. Judge for yourself how helpful these recipes will be for regulators attempting to untangle a large failed financial colossus.
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