It is hard to write a very detailed rule that would address every concern that federal regulators are hearing, she said, but it is even harder to write a simple rule that is conceptually clear to handle the nuances of a complex financial system. She promised that regulators would strive for simplicity with Volcker and the other reforms they are implementing. At the same time, regulators are mindful of the need to have smart rules that are responsive to the unique needs of the financial system and promote economic growth.
At the same time, Dodd-Frank also provides that large financial institutions must hold more and higher-quality capital and maintain larger liquidity buffers. We want these firms to be less likely to fail and help them withstand financial stress. These higher standards will force large institutions to operate within a framework that reduces systemic risk and will result in an effective governor on size. Community banks, which do not pose the same type of risks to the system, will not be subject to the same obligations. The Dodd-Frank Act provides regulators the tools needed to wind down, break apart, and liquidate large financial companies. With these new tools, said the official, culpable management will be replaced, creditors will suffer losses, and shareholders will be wiped out. And large financial institutions, not smaller banks or taxpayers, will rightfully pay any costs associated with the wind down.