Fed Calls For Break-Up Of Too Big To Fail Banks

The Dallas Federal Reserve is calling for what would effectively be a break-up of the big banks in an effort to end the Too Big To Fail banking risks.  An annual report titled “Choosing the Road to Prosperity” is tagged Why We Must End Too Big to Fail—Now.

The white paper noted that the road back to prosperity will require reform of the financial sector. In particular, a new roadmap must find ways around the potential hazards posed by the financial institutions that the government not all that long ago deemed “too big to fail”—or TBTF, for short.

One concern is that the new law may not prevent the biggest financial institutions from taking excessive risk or growing ever bigger. Harvey Rosenblum’s paper notes, “Eliminating TBTF won’t be easy, but the vitality of our capitalist system and the long-term prosperity it produces hang in the balance.”

The paper goes on to note that complacency, greed, and complicity all played individual parts.  It also noted that a deep concentration amplified the speed and breadth of the subsequent damage to the banking sector and also to the whole economy.

What is interesting is that this is not all pro-regulation.  The paper notes, “The verdict on Dodd–Frank will depend on what the final rules look like. So far, the new law hasn’t helped revive the economy and may have inadvertently undermined growth.”

FULL PAPER IS HERE

JON C. OGG