Grading Financial Reform

"The House bill does address the most important problems of regulating systemic risk and too-big-to-fail institutions directly–make no mistake about it. Guaranteeing the liabilities of major U.S. financial institutions distorts the allocation of capital and competition among financial intermediaries. The guarantee provides these firms with an unfair advantage, because they can raise capital at a lower cost. Since the guarantee is so valuable and pervasive, these giant intermediaries face little market discipline and have a perverse incentive to expand their scope, scale, risk exposure, leverage and financial interconnectedness. The result is a less-competitive and less-efficient financial system."