As the nation’s eyes turn once again to the threats posed by systemically risky financial firms, the Independent Community Bankers of America is here to reiterate our support for the only solution to the too-big-to-fail problem—downsizing these financial firms into more manageable and less dangerous parts.
The too-big-to-fail problem—in which a handful of megabanks enjoy a government guarantee against failure because of the risks they pose—is deeply embedded in our financial system. Not only does the sheer size and complexity of too-big-to-fail firms put our system at risk and hold taxpayers hostage to the whims of Wall Street, it also fundamentally affects community banks and the communities they serve.
The too-big-to-fail disease distorts free markets, incentivizes risky behavior, creates unfair competitive advantages for the largest banks, and damages the reputation of the entire banking industry. Revelations from U.S. Attorney General Eric Holder demonstrate that the nation’s financial behemoths are also apparently immune from prosecution for their crimes.
But there is perhaps no greater reminder of the too-big-to-fail impact than the constant, oppressive regulatory burdens that community banks face on a daily basis. Virtually every legal restriction, every consumer and lending law, every regulatory hoop that community bankers must jump through result from reckless behavior or outright wrongdoing by the nation’s megabanks and their nonbank “shadow” subsidiaries.
The regulatory red tape that flows from Washington to Main Street is there because of the misdeeds of a handful of megabanks on Wall Street. These are the same institutions that say they want to end the too-big-to-fail problem, but that nevertheless bask in the protections it provides while community bankers are held accountable. Our Main Street economies survived despite these too-big-to-fail institutions, not because of them.
So the answer is not more regulation—we’ve had enough! Despite numerous existing regulatory authorities to resolve financial firms that pose systemic risks, the too-big-to-fail plague continues to fester. To truly solve the problem, we as a nation must work to break up the megabank oligopoly by downsizing these institutions. Just as Teddy Roosevelt busted anticompetitive trusts in his time, the megabanks should be broken up to promote competition and truly functional free financial markets in our time. To quote former Fed Chairman Alan Greenspan, “If they’re too big to fail, they're too big. In 1911 we broke up Standard Oil—so what happened? The individual parts became more valuable than the whole.”
The good news is that community bankers are no longer alone in our battle. A recent poll found that 50 percent of U.S. adults said they favor breaking up the 12 largest megabanks, with only 23 percent opposed. And while bipartisan consensus is hard to come by in Washington, the U.S. Senate recently voted 99-0 for an amendment declaring that the biggest banks should no longer benefit from taxpayer subsidies or funding advantages.
The era of piling on new regulations in an attempt to contain the too-big-to-fail threat must end. While ICBA continues to target the symptoms of too-big-to-fail with our Plan for Prosperity regulatory-relief agenda, we must also treat the cause of this financial disease directly. Because the size and complexity of too-big-to-fail, too-big-to-jail and too-big-to-regulate financial firms create our nation’s financial problems, we cannot mitigate the risks without addressing these institutions’ size and structure.
Splitting up systemically risky financial firms will restore discipline to the financial markets, mitigate future crises, and bring much-needed relief to community banks from the constant tsunami of regulation. Only by taking forceful action against the too-big-to-fail “oligopoly” can we unchain the free market and restore balance to our financial system once and for all.
Also, in case you missed it… I wanted to ensure that every community banker across the country had a chance to see some of the recent media stories that have surfaced regarding too-big-to-fail. See below for a few links. It’s obvious we’ve got allies on our side.