In this report, FedFin assesses today’s House FinServ Subcommittee on Oversight and Investigations hearing to address allegations that Dodd-Frank’s Title II Orderly Liquidation Authority (see reports in the RESOLVE series) has made permanent TBTF. Discussion focused largely on the so-called “subsidy” that large banks receive – i.e. the lower cost of funding that can result from the market’s belief that the government implicitly backs such institutions. GOP members also expressed concerns that the OLA process still constitutes a government backstop, despite the statutory requirement that OLA expenditures be repaid by the financial industry. Debate was largely along party lines, although Rep. Sherman (D-CA), who along with Sen. Sanders (I-VT) has introduced legislation that would break up the biggest banks (see FSM Report TBTF6), attended the hearing despite not sitting on the subcommittee to voice his disagreement with the notion that TBTF is over. A majority of the witnesses backed the GOP preference to replace OLA with a revised Chapter 14 bankruptcy process. This report analyzes the hearing, which reflects the long-held House GOP view that OLA not only should be repealed, but also that doing so would score as a significant savings to taxpayers if done in connection with fiscal policy.
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