Fact Check: Financial Reform

April 22, 2010 — -- We've now heard both arguments.

The Republicans say proposed financial regulatory reform could lead to another bailout.

"The administration said it wants to end bailouts," Senate Minority Leader Mitch McConnell, R-Kentucky, has said. "I say to them, prove it."

Today, President Obama said, "That makes for a good sound bite, but it's not factually accurate. It is not true."

So who's right? Is this reform really just setting us up for another bank bailout?

"Simply put, no," said Lawrence White, a professor of economics at NYU who worked in Washington under Republican and Democratic administrations. "That's certainly not the intention. The intention is to reduce the likelihood."

Many economists say that by raising the requirement on how much capital banks must have on hand, it reduces the chances of another Lehman Brothers-type failure.

But if we're not getting set up for another bailout, then what's all this debate over a $50 billion banking fund? Does its existence send up a red flag that the fund is a bailout waiting to happen?

Again, White thinks the answer is no.

"I don't think it's encouragement," he said. "I think it's a just-in-case."

If that fund even survives this debate, he said, it would be paid for by the banks.