The Federal Deposit Insurance Corp tried to seize and sell Cleveland thrift AmTrust last January but local politicians intervened. In the end, the bank still went bust 11 months later – a delay that may have increased losses to the U.S. regulator’s funds. As Congress debates banking reform, AmTrust provides a useful warning that the regulatory apparatus needs to be kept free from politics.
For all the fear that bankers have expressed about Representative Paul Kanjorski’s amendment to end “too big to fail,” the final text shows that they don’t have much to fear. While the amendment gives regulators new power, it’s unlikely they’d actually use it.