William (aka Bill the Godfather)

William (aka Bill the Godfather)

Saturday, October 13, 2012

George Will: End Too Big To Fail And Break Up The Mega Banks

If in four weeks a president-elect Mitt Romney is seeking a Treasury secretary, he should look here, to Richard Fisher, president of the Federal Reserve Bank of Dallas. Candidate Romney can enhance his chance of having this choice to make by embracing a simple proposition from Fisher: Systemically important financial institutions (SIFIs), meaning too-big-to-fail (TBTF) banks, are “too dangerous to permit.”

Romney almost did this in the first debate when he said the Dodd-Frank Act makes TBTF banks “effectively guaranteed by the federal government” and constitutes “the biggest kiss that’s been given to — to New York banks I’ve ever seen.” Fisher, who has a flair for rhetorical pungency, is more crisp:

There are 6,000 American banks, but “half of the entire banking industry’s assets” are concentrated in five institutions whose combined assets amount to almost 60 percent of the gross domestic product. And “the top 10 banks now account for 61 percent of commercial banking assets, substantially more than the 26 percent of only 20 years ago.” The problems posed by “supersized and hypercomplex banks” may, Fisher says, require anti-obesity policies equivalent to “irreversible lap-band or gastric bypass surgery.” The land of TBTFs is “a perverse financial Lake Wobegon” where all crises are “exceptional,” justifying “unique” solutions that are the same — meaning bailouts. This incurs “the wrath of ordinary citizens and smaller entities that resent this favorable treatment, and we plant the seeds of social unrest.”
Read the rest here.

1 comment:

Phil said...

I saw another idea recently to require banks over a certain asset amount to be partnerships, as a way of self-regulating risk. It seems to me that in the era when investment banks on The Street were partnerships, the amount of risk-taking was far lower. How much the partnership form contributed to that, I don't know. Nor am I sure that's a valid business form for a commercial bank. But there's definitely far too much concentration right now. These banks are too big to fail whether anybody likes it or not, as a matter of policy.