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 methods 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
- Prevents further consolidation of the banking industry into a few large GSIBs.
- Potentially protects smaller and regional banks from being absorbed by larger entities.
- Could foster a more competitive banking landscape.
- May reduce systemic risk by limiting the size and influence of GSIBs.
- Provides the FDIC with more flexibility in resolving failing banks.
Most Benefited Areas:
Potential Disadvantages
- Could increase costs to the Deposit Insurance Fund, potentially requiring higher premiums from banks.
- The 'least cost' principle is weakened, potentially leading to less efficient resolutions.
- The rule-making process by the FDIC introduces uncertainty and potential for regulatory capture.
- The exception may create moral hazard, encouraging risk-taking by smaller banks knowing they won't be acquired by GSIBs.
- Determining the 'maximum allowable cost' introduces complexity and potential for disputes.
Most Disadvantaged Areas:
Constitutional Alignment
The bill appears to align with the Constitution's general welfare clause (Preamble) by aiming to maintain a stable financial system. Congress has the power to regulate commerce, including banking (Article I, Section 8). The bill does not appear to infringe on any specific constitutional rights or limitations.
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).