* Dodd-Frank includes power to dismantle financial firms
* Power designed to remove idea some firms too big to fail
* S&P says extraordinary government support still possible
WASHINGTON, July 12 The Dodd-Frank financial
oversight law has not ended "too big to fail," and the U.S.
government still may step in to save a toppling financial giant
during the next crisis, Standard & Poor's said in a report on
The rating agency's report acknowledges policymakers'
desire to make clear that the government in the future will not
step in to bail out big financial firms.
But S&P says the government's long track record of finding
ways to prop up critical financial firms trumps the intentions
of the legislative framework.
"We believe that under certain circumstances and with
selected systemically important financial institutions, future
extraordinary government support is still possible," the report
Last year's Dodd-Frank law gives regulators the power to
seize a large financial firm that is headed for disaster and
dismantle it in a way that is less disruptive than either
taxpayer bailouts or bankruptcy.
The crisis that peaked in the fall of 2008 pushed some of
the most storied financial firms to the brink of collapse.
Some, such as AIG (AIG.N), were bailed out by the government;
others, such as Lehman Brothers, were not and went bankrupt.
So far, markets have been skeptical that this new so-called
Orderly Liquidation Authority will ever be invoked, and even if
it is, its detractors say that it will not work as intended.
Proponents led by recently departed Federal Deposit
Insurance Corp Chairman Sheila Bair got a boost last month from
Moody's Investors Service.
In a June 2 report, Moody's said it may downgrade the debt
ratings of Bank of America Corp (BAC.N), Citigroup Inc (C.N)
and Wells Fargo & Co (WFC.N), citing concerns about waning U.S.
political willingness to offer support for the largest banks.
S&P, however, said on Tuesday that in the face of an
unpredictable financial crisis, the liquidation authority may
not work, and government may step in with support.
"Ultimately, in our views of new legislation and
regulation, we need to consider the long track-record of
extraordinary support that may be essential for a handful of
institutions despite government reluctance to offer such
support," S&P said.
(Reporting by Karey Wutkowski; Editing by Tim Dobbyn)