“Most observers who study this believe that to try to break banks up into a lot of little pieces would hurt our ability to serve large companies and hurt the competitiveness of the United States…They believe that it would actually make us less stable, because the individual banks would be less diversified and, therefore, at greater risk of failing, because they wouldn’t have profits in one area to turn to when a different area got in trouble. And most observers believe that dealing with the simultaneous failure of many small institutions would actually generate more need for bailouts and reliance on taxpayers than the current economic environment.”
- Lawrence Summers, Director, National Economic Council,
PBS NewsHour with Jim Lehrer, April 22, 2010
As the Wall Street Journal’s Victoria McGrane recently reported, a group of Democrats in the Senate, led by Senators Sherrod Brown (D-OH) and Ted Kaufman (D-DE), will soon introduce legislation that would impose strict size limits on financial firms. The legislation would limit bank holding companies’ insured deposits to no more than 10% of the nation’s total deposits, and non-deposit liabilities to 2% of GDP. Banking companies that currently exceed those size limits – including JPMorgan Chase, Wells Fargo, and Bank of America – would have three years to downsize.
“This is what it takes to make sure we never have to revisit ‘too-big-to-fail,’” Senator Kaufman said.The proposed legislation is misguided – the wrong response to the wrong problem. The problem of “too-big-to-fail” is not that some institutions are large; the problem is that there is currently no statutory authority to wind down a failing financial conglomerate in the way that the FDIC is currently authorized to wind down a bank. More effective supervision, coupled with the authority to seize and wind down large firms, is the appropriate remedy to “too-big-to-fail.”
Large Institutions Are Not Inherently More Risky
Large Financial Institutions Provide Significant Value to Customers and Markets
Large Financial Institutions Contribute to U.S. Competitiveness
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