Three-plus years after the Dodd-Frank Act sought to end too big to fail – in part by limiting the FRB and FDIC’s powers – the FRB has proposed how it will going forward use its remaining ability to provide emergency support other than through traditional discount-window liquidity. The proposal largely reiterates the Dodd-Frank Act and thus preserves the maximum amount of FRB discretion within the boundaries of the new law, limiting the extent to which the FRB might be hamstrung in a crisis, but perhaps also raising fears of renewed taxpayer risk and moral hazard. As a result, this proposal is unlikely to settle public debate over too big to fail.
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