Experimental feature

Listen to this article

Experimental feature

US President Donald Trump is taking aim at “too big to fail” banks by ordering a review of post-crisis tools to deal with failing lenders, which have been attacked by conservatives as a government bailout fund in waiting.

In his latest step towards undoing Obama-era reforms, Mr Trump will on Friday sign an order that opens the door to overhauling a mechanism intended to help regulators shut down failing institutions.

His move runs contrary to the interests of the biggest Wall Street banks, which blanch at thoughts of their own demise but see the “orderly liquidation” tools as vital to averting a systemic meltdown in a crisis.

More than eight years since the crisis-era bailouts of Citigroup, Bank of America and others, opinion is divided over whether the Dodd-Frank reforms did enough to eliminate the need for government rescues of troubled big banks.

Announcing Mr Trump’s orders, Steven Mnuchin, Treasury secretary, said: “Let me make it absolutely clear. President Trump is absolutely committed to make sure taxpayers are not at risk of government bailouts of entities that are too big to fail.”

He said the review of liquidation authority would entail “an analysis to make sure that this doesn’t encourage excess risk taking, moral hazard, and exposure to taxpayers”.

The 2010 Dodd-Frank reforms, one of former president Barack Obama’s signature achievements, were meant to end taxpayer bailouts of “too big to fail” banks by giving regulators the authority to liquidate troubled institutions.

But the measures have been attacked from the right for codifying bailouts, because they also created an orderly liquidation fund that can make loans to troubled banks and pay their creditors.

Democrats and Obama-appointed regulators dispute the idea the fund is bailout money, saying it instead provides an essential backstop to calm market uncertainty as regulators take control of an ailing institution.

Get alerts on US politics & policy when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.

Comments have not been enabled for this article.

Follow the topics in this article