So, the Federal Reserve and the Federal Deposit Insurance Corporation have taken a good look at the top 5 biggest banks to see whether than can and should be broken up. They made their official announcement on their findings yesterday.
The Huffington Post reports on Elizabeth Warren’s reaction. She is not impressed.
“This announcement is a very big deal. It’s scary,” Warren said in a written statement. “After an extensive, multi-year review process, federal regulators concluded that five of the country’s biggest banks are still — literally — too big to fail. They officially determined that five U.S. banks are large enough that any one of them could crash the economy again if they started to fail and were not bailed out.”
Does that mean they will get broken up if there are credible plans in place? Not so fast. The article summarizes the Fed’s announcement:
The banks — Bank of America, Wells Fargo, JPMorgan Chase, State Street and Bank of New York Mellon — were all given until Oct. 1 to present more credible plans for how they’d enter bankruptcy, or face penalties from regulators. If they continue to fail to present credible “living wills,” regulators will eventually be required to break them up.
Basically, if they have a plan for rapid bankruptcy, then no biggie. No need for action. Of course, said plan will definitely go smoothly and have no impact on the rest of the market. It begs belief. Citing the Fed/FDIC announcement again:
Section 165(d) of the Dodd-Frank Act requires bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council (FSOC) for supervision by the Federal Reserve periodically submit resolution plans to the Federal Reserve and the Federal Deposit Insurance Corporation.When they are too big to fail, they are not too big to be broken up — as long as they let us know what to do when disaster hits. One wonders who got that bit put in the law. It amuses me greatly that Barney Frank wants us to believe him that lobbyists in the financial industry exerted no influence over him when writing it.
Paul Krugman had incredibly argued that it wasn’t even the fault of the big banks.
“The crisis itself was centered not on big banks but on ‘shadow banks’ like Lehman Brothers that weren’t necessarily that big.”
Warren’s words were not minced, alluding to Krugman’s ‘revisionist’ claims as ‘dangerous’ and demanding action.
“Revisionist history is dangerous because it can blind us in the present - and bind us in the future. Today’s announcement should remind us of the central role that the big banks played in the last crisis - and it is a giant, flashing sign warning us about the central role they will play in the next crisis unless both Congress and our regulators show some backbone.”
I personally don’t believe that Hillary Clinton is the person to lead on this particular issue. When she and Sanders debated on it, she laced her language with caveats. An abbreviated example:
Clinton:“I will use [the power to break up big banks] if they pose a systemic risk.”
Sanders: “When you have 3 out of the 4 largest banks in America today bigger than they were when we bailed them out because they were too big to fail… time to break them up.”
Clinton: “We have a law… to determine whether a systemic risk is posed.”
If they have a ‘credible plan’ for bankruptcy, then it appears the law identifies them as not posing a ‘systemic risk’ and thus breaking them up is not something she pursue.
I covered this towards the end of a previous diary, which also included a video of the full exchange:
“I agree with Hillary Clinton — Sanders is no Democrat”
The combination of this with the much maligned speaking fees and campaign finance from Wall St makes a claim that she would stand up to the big banks a tough sell to anybody other than her ardent supporters. Expect it to be a fiercely debated topic in tonight’s debate!