Eleven States Now Challenge Dodd-Frank’s Orderly Liquidation Authority, Which Exacerbates “Too Big To Fail” and Puts State Pensions and Other Funds at Risk
WASHINGTON, D.C., February 13, 2013 – In an attempt to protect their pension funds, taxpayers and financial stability, the states of Alabama, Georgia, Kansas, Montana, Nebraska, Ohio, Texas and West Virginia today join a major lawsuit challenging the constitutionality of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
These states are asking the U.S. District Court for the District of Columbia to join the suit in order to challenge the validity of the Orderly Liquidation Authority, established under Title II of Dodd-Frank. If permitted, these states would join the three states already in the lawsuit—Oklahoma, South Carolina, and Michigan — as well as three private plaintiffs: the State National Bank of Big Spring, Texas; the 60 Plus Association; and the Competitive Enterprise Institute.
The 11 state attorneys general are challenging Title II of the Dodd-Frank Act, which gives the Secretary of the Treasury so-called “Orderly Liquidation Authority” (OLA). By abridging the rights that federal bankruptcy laws long have guaranteed to creditors, OLA strips the states of valuable property rights that ensured certainty and the rule of law for States’ investments of taxpayers’ revenues and government employees’ savings.
Dodd-Frank has created new risks of uncertainty and unequal treatment for investors such as the states. The OLA can liquidate financial companies with no advance warning. It acts in secret, with minimal accountability to Congress, the president or the courts. The government decides how much to give each investor during the liquidation process, and the states have no ability to ensure they recoup the value of their investments at a level commensurate with Wall Street banks, whose too-big-to-fail status gives the Federal Government every incentive to compensate them at full value at the expense of everybody else. Overall, Dodd-Frank perpetuates too-big-to-fail, creating a serious moral hazard, harming community bank capacity to fund the small businesses and job creation and posing an increasing risk of a repeat economic meltdown.