Is It Time to Break Up the Big Banks?

Is It Time to Break Up the Big Banks?

In light of the recent multi-billion dollar fines on major banking institutions (see "Five Global Banks Plead Guilty to Manipulating Foreign Exchange Rates"), it makes you wonder if legislation introduced by Sen. Bernie Sanders and Rep. Brad Sherman doesn't make a lot of sense.

Basically, they are saying that after major financial institutions were responsible for almost bringing about a worldwide financial collapse and had to be bailed out by our government just a few years ago, we should make sure that could never happen again. But as the article above demonstrates, major banks just continue to commit criminal acts, despite big fines when they are caught.

The legislation authored by Sanders and Sherman, "The Too Big to Fail, Too Big to Exist Act," would give the Financial Stability Oversight Council 90 days to compile a list of banks, hedge funds, insurance companies and other entities whose failure would have a catastrophic effect on the financial system or economy. The Treasury Department would then be required to break up these institutions within a year "so that they cannot cause another financial crisis ever again," Sanders said.

The idea was endorsed by the Independent Community Bankers of America, whose president and CEO, Camden Fine, said, "ICBA agrees that the too-big-to-fail megabanks are too big to exist. After triggering a historic financial crisis and receiving  trillions of dollars in taxpayer assistance, the nation's largest and riskiest financial institutions continue to pose systemic threats to our economy while enjoying an artificial funding advantage subsidized by taxpayers."

Sanders, who recently announced he is a candidate for President of the United States, said, "The function of banking should not be about making as much profits as possible gambling on derivatives and other esoteric financial instruments. (It) should be to provide affordable loans to small businesses to create jobs in the productive economy (and) provide affordable loans to Americans to purchase homes and cars. Wall Street cannot be an island unto itself."

Sanders noted that JPMorgan Chase, Bank of America and Wells Fargo are 80 percent larger now than they were before the financial crisis. If any of these institutions were to fail, he said, "the taxpayers of this country would be on the hook for another bailout, perhaps even larger than the last one. We cannot let that happen again."

Sanders said that despite the Dodd-Frank Act, which requires banks with assets of $50 billion or more to submit "orderly and rapid" resolution plans in the event of material financial distress or failure, big banks are still engaged in lots of "reckless activity." He contends that regulators should not be given the option of dismantling megabanks. They should be required to do so.

It should be noted that the legislation offered by Sanders and Sherman is not given much of a chance of passage. It is the third time it has been offered and, like similar bills, it has gone nowhere.