“Too Big To Fail” Law Seen As Too Weak to Work

A year after the enactment of a sweeping Wall Street reform law, evidence is growing that it failed in its main mission of ending taxpayer bailouts of global banks considered “too big to fail.”

Despite an outright ban on bailouts written into the legislation, Wall Street investors and credit agencies remain skeptical that the government will not step in again to prevent any downfall of major banks such as Bank of America, Citigroup or JP Morgan. Those financial goliaths have only grown in size and power, making it more certain that they would bring down much of the financial system with them.

The most concrete sign that the banks still enjoy an implicit guarantee from the government is that none of the top banks has been downgraded since the legislation was enacted, even though their high credit ratings for years have been based on the expectation that the government would prevent any catastrophic failure of the bank that would harm the bank’s creditors.

Standard & Poor’s Corp. last week pointedly disputed the often-stated claim on Capitol Hill that the legislation had put an end to “too big to fail” and the era of federal bailouts.

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