Least Cost Exception Act
Summary
The Least Cost Exception Act amends the Federal Deposit Insurance Act, providing an exception to the 'least-cost resolution' requirement when dealing with failing banks. This exception allows the FDIC to choose a resolution method that isn't the cheapest if it prevents further concentration of the banking system among global systemically important banking organizations (GSIBs). The bill aims to prevent large banks from becoming even larger by acquiring failing institutions.
Expected Effects
The act could lead to the FDIC choosing more expensive bank resolution options to avoid GSIBs absorbing smaller banks. This might protect smaller financial institutions and promote competition. However, it could also increase the risk to the Deposit Insurance Fund.
Potential Benefits
- May prevent further consolidation of the banking industry into a few large GSIBs.
- Could support smaller and regional banks by allowing them to acquire failing institutions instead of GSIBs.
- Potentially reduces systemic risk by limiting the size and influence of GSIBs.
- Requires a report to Congress on the economic difference between the selected alternative and the least costly one, promoting transparency.
- The act mandates a rule specifying the maximum amount of the Deposit Insurance Fund that can be utilized, adding a layer of fiscal control.
Most Benefited Areas:
Potential Disadvantages
- The Deposit Insurance Fund could face increased costs if the FDIC chooses a more expensive resolution method.
- The rule specifying the maximum amount of the fund that can be utilized may not be sufficient to cover all potential scenarios.
- There is a risk that the selected alternative may not be as effective as the least-cost option in resolving the failing bank.
- The exception could create uncertainty and complexity in the bank resolution process.
- The assessment paid by the purchasing entity might not fully compensate for the difference in cost to the Deposit Insurance Fund.
Constitutional Alignment
The bill appears to align with Congress's power to regulate commerce and establish laws related to banking and financial institutions, as outlined in Article I, Section 8 of the Constitution. The necessary and proper clause could also be invoked to justify the measures taken to ensure the stability of the financial system. However, the potential impact on individual property rights and the use of taxpayer funds through the Deposit Insurance Fund could raise questions related to due process and equal protection under the Fifth Amendment.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).