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Commentary: For Banks, Taxpayers Just Keep Paying More

Even more of your tax dollars are headed for the banks. We learned that from Ben Bernanke today in a roundabout way.

The Fed Chief told Congress the following: We have no structure, legal or regulatory, that allows us to resolve in a safe and sound way, a large fin international conglomerate. It's better, frankly, to try to resolve it in the context of continued operations than to allow it to fail and allow the chaos of a bankruptcy.

Why does that matter and what does it have to do with your money? Let's back up.

In late February the Treasury announced they would stress test the 19 or 20 largest banks in the United States. A lot of us—journalists, investors, Congress—assumed that stress test would be pass/fail. The banks that failed would be taken over, similar to what the FDIC does with smaller banks.

But now we’ve learned that is not going to be case, because Bernanke says no one in the government has the authority to do that with large, multinational financials.

So think about that—if the banks can’t be shut down—what the stress test for? It's not to determine who’s going to live or die. It is to determine how much more money they are going to need in order to survive. And where’s that money going to come from? You and me.

This is the second time Bernanke makes reference to this. He said it last week in the final minutes of his semi-annual testimony in front of Congress, when only Senators Corker and Dodd were in the room. Below is the exchange. (The point wasn’t lost on the rest of the Senate, because they’ve asked him about it several times today.)

The statement was made earlier that the Federal Reserve does not have the authority to close down an — a large institution. I think that the chairman may have been referring to AIG; I'm not sure.

But I'm wondering if it would be good for him to clarify and then, since this committee, I guess, would have something to do with that, if there's something that he's asking for. I'll wait until —there's something he's asking for — because what I'd hate to happen is, two years from now, we end up in a situation — if it's AIG — he might have been talking about Citigroup . I don't know who he's talking about; I'd love the clarification.

Bernanke: I think what's missing is a comprehensive resolution authority, a set of rules and guidelines which — which explains how the government in general would address the potential failure of a systematically critical firm, like AIG , for example.

Senator CORKER: So it could be Citigroup? It could be any firm?

BERNANKE: Right. The existing rules don't cover Citigroup, because that's a bank-holding company with lots of different components. So we don't have a good framework for dealing with systematically critical firms. At the Fed, we're working on some proposals. We'd be happy to share them with you at some point.

But I do think that that's the first step — when it's — until it's safe to close down a big firm, you're going to be forced to take actions to avoid it.

So get ready to pay up, because it looks like they are sticking with the status quo of more money, more money and more money.

Banks