Background on Too-Big-To-Fail

During the 2008 financial crisis some of the nation’s largest financial services firms teetered on the brink of collapse and received an injection of capital provided by from the Troubled Asset Relief Program (TARP). At the time, many observers believed these larger firms, including AIG – an insurance company, were simply too large and too interconnected to be allowed to “fail”.

Many community bankers believe that the perception of TBTF gives the nation’s largest banks a pricing advantage over smaller community and regional banks. It is viewed by many as a government “guarantee” or subsidy, and it enables the larger banks to offer better rates.

Title II of Dodd-Frank was intended to end TBTF as a matter of national policy. Some observers, like President Obama and former FDIC Chairman Sheila Bair, believe that Dodd-Frank did that,i.e, it ended TBTF. Other observers – like FDIC Vice Chairman Tom Hoenig – believe that Dodd-Frank institutionalized TBTF and the policy of TBTF remains alive and well today.

Assuming that TBTF is still with us,

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* 1. Do you support keeping the policy of “too-big-to-fail” (TBTF) in place? (If your answer is yes, thank you. That’s all we need to know.)

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* 2. Do you support legislation to break up the nation’s largest banks – those in excess of $500 billion in total assets – as the best way to end TBTF?

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* 3. Do you support the idea of creating a separate community bank charter, with different rules than those that apply to TBTF firms, as the best way to end TBTF and level the competitive playing field?

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* 4. Which of the previous two solutions do you prefer?

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