Still too big to fail
from David Ruccio
Here we are in 2016, almost eight years after the financial crash that brought the world economy to it knees (and ruined countless homeowners and threw millions of people out of work), and nothing has been done to solve the problem of Too Big to Fail banks.
In fact, as everyone knows (and as Stephanie Fontana points out), those banks are now ever bigger and the financial sector even more concentrated.
A small number of massive banks dominate this powerful industry with the five largest banks collectively holding $6.9 trillion in assets – 44 percent of total U.S. bank assets as of the end of September.
So, where are we in the current debate? One major-party candidate (Donald Trump) simply wants to scrap the existing reforms to the financial sector (contained in Dodd-Frank). Another (Hillary Clinton) wants just to enforce the minor changes contained in the new regulations. Only the third candidate (Bernie Sanders) suggests we deal with the problem by breaking up Too Big to Fail banks and bringing back something like the Glass-Steagall Act.
Here’s the irony: the folks who run one of the bankers’ banks, the Federal Bank of Minneapolis, recognize that the existence of Too Big to Fail banks continues to be a problem. And conservative University of Chicago finance economist Luigi Zingales, in his talk at the Minneapolis conference, argues that Too Big to Fail banks have too much power, both economically and politically; the so-called Volcker Rule has been captured and rendered useless; and, belatedly, he’s become convinced that something like Glass-Steagall needs to be implemented.
I’m not arguing that breaking up the banks and implementing Glass-Steagall is enough. But shouldn’t that be the starting point for our current debate?