The head of the Federal Deposit Insurance Corp has said that he is planning a major roadshow to persuade investors that the government now has the power to wind up a failing bank rather than bail it out.
“I don’t know that we’re going to persuade everybody, but if we can even move the center of gravity a little bit in terms of persuading people that we are really quite serious about this... If we can do that, we really will have accomplished a lot,” Martin Gruenberg (pictured), acting chief of the FDIC, told Reuters.
“I think now we are really at the point where we have to go outside the regulatory community and speak more publicly to interested parties.”
The Dodd-Frank Act has given US regulators powers to take over failing banks and impose losses on their private bondholders rather than resorting to taxpayers cash. But it is not clear if investors really believe that the authorities would do it in a crisis, meaning they still believe banks are effectively subsidised, thus lowering their cost of funding.