Treasury Official Says ‘Too Big To Fail’ Bailouts Of Banks Won’t Happen Again

U.S. Treasury official Mary Miller said in prepared remarks Thursday evening at a financial industry gathering held in Manhattan that “No financial institution, regardless of its size, will be bailed out by taxpayers again.”

Miller, the Treasury's undersecretary for domestic finance, spoke at the 22nd Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies.

Much of her speech was devoted to lauding the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. That sweeping piece of legislation either doesn’t do enough, as many consumer advocates argue, or is overreaching, as many bank executives argue, or is a compromised solution, as claimed by the act's proponents and the Obama administration.

Aside from all the wonky talk in Miller’s speech about financial regulatory reforms, swap transactions, stress testing, Tier 1 common equity capital, among other topics, she assured those in attendance the days of U.S.-taxpayer-funded TARP-style bailouts of large financial services companies is over.

Here’s the most interesting portion of that talk:

A common use of the too-big-to-fail shorthand is the notion that the government will bail a company out if it is in danger of collapse because its failure would otherwise have too great a negative impact on the financial system or the broader economy. With respect to this understanding of too-big-to-fail, let me be very clear: it is wrong … as a result of the comprehensive reforms passed by Congress and signed into law by President Obama, no financial institution, regardless of its size, will be bailed out by taxpayers again. Shareholders of failed companies will be wiped out; creditors will absorb losses; culpable management will not be retained and may have their compensation clawed back; and any remaining costs associated with liquidating the company must be recovered from disposition of the company’s assets and, if necessary, from assessments on the financial sector, not taxpayers.

Whether or not this promise stands the test of time will have to wait until the next massive bubble bursts (and if history is any indication, there will be a next time), sending capitalists to Washington begging that their losses be socialized.

[The full speech can be read here.]