Democrats & Liberals Archives

Break Up the Big Banks

We all know that there are a handful of banks that are “too-big-to-fail.” We know, and we are upset because we know, that we bailed out these monstrous banks. We know, or we should know, that these “too-big-to-fail” banks will need to be bailed out again in the future if we do nothing now. The only sure solution is to break up the banks so that none of them is “too-big-to-fail.”

There is a suggestion-a-day for what to do. Most of them deal with controling financial factors that the average person does not understand. That, in itself, makes all these suggestions suspect. Why get complicated when the simplest solution to the "too-big-to-fail" problem is obvious: break up the banks.

There is already a law that caps the size of a bank at 10% of the total country deposits. Evidently, this cap did not do the job. It's too generous. It allows 10 banks to control all finance. Stacy Mitchell, Senior researcher, New Rules Project's Community Banking Initiative, says:

Reestablishing a cap on the size of banks -- one small enough not only to limit mergers among giants in the future but to require an orderly break-up of the biggest banks -- ought to be a key pillar of financial reform. It's by no means the only policy needed to curtail systemic risk and rebuild a community-oriented financial system, but it is easily the best and most straightforward tool we have for constraining the concentration of banking power.

Dodd's financial reform bill lacks a hard cap on bank size, but an amendment put forward by Senator Sherrod Brown of Ohio would strictly limit the size of banks and, if enacted, entail breaking the country's largest banks into several pieces.

If you hate bank bailouts, and who doesn't, tell your senator to enact the Sherrod-Brown amendment that will break up the big banks.

Posted by Paul Siegel at March 26, 2010 8:01 PM
Comments
Comment #298004

I believe Paul Volcker also suggested such an idea.

Posted by: gergle at March 26, 2010 10:11 PM
Comment #298012

Paul
I respectfully disagree. Quality,not size should be the determining factor. A look to the north at the Canadian banking system should give insight. They were the only G7 country that did not have to bailout their banks. Notably their industry is dominated by large banks. The key to their stability appears to be strong,enforced,uncomplcated regulation.Not size restrictions.Size does not matter or so my wife assures me.

Posted by: bills at March 26, 2010 11:48 PM
Comment #298023


Bills, perhaps Canadian politicians aren’t as easy to bribe as ours are. Perhaps the Canadian people are better informed and take on more responsibility for how they are governed than we do.

I have little faith in seeing any meaningful financial reform coming out of this Congress.

Paul, the next big bailout will probably be on behalf of the health insurance companies.

Posted by: jlw at March 27, 2010 1:32 AM
Comment #298033

jlw
I dig it up,but as I recall one of the regulations required that a bank have at least 20% of leverage.

Bailout for Health insursers? Maybe we will finally get single payer.

Posted by: bills at March 27, 2010 7:30 AM
Comment #298039

bills:

Are you proposing we follow the SOCIALIST policies of Canada?

Posted by: Henry Jones at March 27, 2010 9:13 AM
Comment #298046

Henry Jones
I hope that is jest but if not the answer is no.I am suggesting we learn from a system of bank regulation that worked to prevent the private financial system from collapse.Again,Canada was the only G7 country that did not bailout their banking system.

Posted by: bills at March 27, 2010 12:07 PM
Comment #298047

bills

Good report on Canadian banks. Should be of note that they DO have a consumer protection agency.

http://www.ft.com/cms/s/2/db2b340a-0a1b-11df-8b23-00144feabdc0.html

Posted by: bills at March 27, 2010 12:13 PM
Comment #298067

Canadian banks didn’t implode. The Canadian health care system provides universal health care at almost half the cost per capita than the US. Perhaps some of the answers to our most serious problems are right next door. But, we would have to set aside our pride and admit that maybe someone else has a better mouse trap.

Posted by: Rich at March 27, 2010 7:15 PM
Comment #298072

May be hard to get a consensus on what ‘too big to fail’ means for a supportable legislative proposal.

Agree with bills, it is time for new/refreshed (emphasis, some) preventive regulatory protections and enofrce those existing. Hopefully, Sen. Dodd, chair of the Senate Finance Committee can shun the political contributions and table some solid proposals that check existing regulations, invoke meaningful penalty (fines commensurate with the offense)and ensure transparency of reporting/structuring derivitaves and other high-risk/return tools as a start.

Wonder why no legislative proposals have surfaced, in the two years since the economic crisis began, from Senate Finance. That and unemployment should be front and center now that health care is passed (sans the coming court challeenges), my two cents. There are other things that are important public policy to address, these two though …

Posted by: mulpartisan at March 27, 2010 9:10 PM
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