Another Step Closer to Breaking Up the Banks?
November 05, 2009
A banking industry lobbyist I spoke with this evening alerts me to a fascinating development in the House Financial Services Committee: Pennsylvania Rep. Paul Kanjorski is about to introduce an amendment to the systemic risk bill moving through the committee (see my discussion here and here) that would give regulators the power to break up too-big-to-fail firms. The details are a little unclear--as it stands, the current bill would give the Fed some vague powers in this vein. But the soon-to-be Kanjorski amendment appears to go much further, and the banks are freaking out about it.
Could the Economy Survive With Just Medium-Sized Banks?
November 03, 2009
Josef Ackermann, chief executive of Deutsche Bank and chairman of the Institute of International Finance (an influential group, reflecting the interests of global finance in Washington) is opposed to breaking up big banks. According to the FT, he said, “The idea that we could run modern, sophisticated, prosperous economies with a population of mid-sized savings banks is totally misguided.” This is clever rhetoric--aiming to portray proponents of reform as populists with no notion of how a modern economy operates. But the problem is that some leading voices for breaking up banks come from peop
Britain To Break Up Biggest Banks
November 02, 2009
The WSJ reports (online): “The U.K.’s top treasury official Sunday said the government is starting a process to rebuild the country’s banking system, likely pressing major divestments from institutions and trying to attract new retail banks to the market.” The British style is typically understated and policymakers always like to play down radical departures, but this is huge news. Pressure from the EU has apparently had major impact--worries about unfair competition through subsidizing “too big to fail” banks are very real within the European market place. Also, strong voices from within the
'Too Big' Banks Won't Disappear On Their Own
October 29, 2009
That's the conclusion of a new St. Louis Fed study by David Wheelock and Paul Wilson. In the two decades between the mid-80's and 00's, the number of commercial banks fell by 50% while the average size per institution surged by an inflation-adjusted 500%.
October 29, 2009
The Fed's not about to take away the punch bowl. Correlation of the day: A Phillies World Series win could be bad sign for the economy. Justin Fox: Are finance professors to blame for crisis? Before Freakonomics, there was Steve Landsburg, who is now blogging. Has Obama soothed our animal spirits? Somebody's still creating CDOs.
Can We Fix Too Big to Fail Without Shrinkage?
October 28, 2009
David Wessel has a column in today’s Wall Street Journal laying out three approaches to solving our Too Big Too Fail (TBTF) problem. The first two amount to different ways of “busting them up,” as Wessel puts it.
The Man Who Killed Glass-Steagall Wants It Back
October 27, 2009
Something sure to get Simon Johnson's heart pumping: Via the Journal's Real Time Economics blog, I see that John Reed, the man who helped deliver the coup de grace to the Depression-era law against combining commercial banking with investment banking and insurance, now wants to bring it back.
Can Limits on Executive Pay Solve the Too Big To Fail Problem?
October 23, 2009
On Wednesday, Dan Tarullo, a governor of the Federal Reserve and distinguished law school professor, dismissed breaking up big banks as “more a provocative idea than a proposal” and instead put almost all his eggs in the “creation by Congress of a special resolution procedure for systemically important financial firms.” He stressed: “We are hopeful that Congress will, in its legislative response to the crisis, include a resolution mechanism and an extension of regulation to all systemically important financial institutions” (full speech). This put him strikingly at odds with Mervyn King, gove
Financial Innovation We Can Believe In?
October 22, 2009
It's fairly well-established that people could save money over the long run by making their homes more energy-efficient—better insulation, say—or even, in some cases, putting solar panels on their roofs to generate their own electricity. But many of these upgrades never happen, for a variety of reasons. Sometimes the incentives are misaligned, if, say, the landlord owns the building but the tenant pays electricity and heating costs.
The Consensus on Big Banks is Beginning to Crack
October 21, 2009
Just when our biggest banks thought they were out of the woods and into the money, the official consensus in their favor begins to crack. The Obama administration’s publicly stated view--from the highest level in the White House--remains that the banks cannot or should not be broken up. Their argument is that the big banks can be regulated into permanently low risk behavior. In contrast, in an interview reported in the NYT this morning, Paul Volcker argues that attempts to regulate these banks will fail: “The only viable solution, in the Volcker view, is to break up the giants.