Third Party & Independents Archives

'Too Big to Fail' Is a Joke

With the culmination of fiscal 2011, the Federal Bank Reserves show the Top 5 banks hold 52% of wealth in financial sector. Just two years after President Obama promised to prevent financial institutions from becoming “too big to fail,” the five largest banks are bigger than before.

The top five banks consist of JPMorgan, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs. Between those five banks, they hold nearly 60% of the nation's economy. The problem is the banks are even bigger, regardless of the economy in turmoil, therefore it's concerning that these banks could need financial bailout in the future. The "Too big to fail" scheme is still very much in full swing, as these banks continue to hold more wealth, threatening the ability of the Federal Reserve to conduct monetary policy.

Even three years after the bailouts, nothing has been done to prevent this from happening again. The banks, especially the top 5, have nothing to fear; therefore they will continue to take big risks, which jeopardizes the financial stability of the entire country. The reason they have nothing to fear is because they weren't penalized for the first bailout, and haven't been threatened any consequences if it happens again. That's our first mistake.

The banks were bailed out in 2008 with no strings attached, and a lesson should be learned from that. Consequences and penalties need to be enforced on banks that seek a bailout in the future. This is in a hypothetical scenario, because in all honesty our country could not sustain another financial bailout anytime soon. However, ground rules need to be set so that our country learns from our detrimental mistakes and doesn't suffer from the same mistake twice.

Now, breaking up the big banks into multiple smaller banks is necessary in order to protect the US economy and financial sector. Statistics show a 33% profit for financial services, and the larger the banks become the more catastrophic the bailout. Currently, small banks are required to have more cash and capital in order to protect them from an emergency. As the size of these five banks continue to grow rapidly, it's even more important that something is done sooner than later. By breaking large banks into smaller banks, they are required to maintain the same minimum capital, and therefore preventing the nation from undergoing another disastrous financial crisis.

Posted by MichaelMears at June 27, 2012 1:39 PM
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