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Megabanks Need Their Own Lobbying Group

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On Feb. 29 one of the members of the Federal Open Markets Committee, Dallas Fed President Richard Fisher, called for the breakup of the top five U.S. Banks.

Big banks are in a battle for their existence. They are singled out and defined as unique by the government. There are many trade associations for banks (such as the ABA and the Financial Services Roundtable), but none yet exist explicitly for the benefit of America's largest banks. As the Federal Reserve is continuing to call for the dismemberment of the top banks, new representation is needed more than ever before.

The argument for breaking up the biggest banks is they are too big and have excessive deposits post economic meltdown. The reasoning seems at odds with the spirit of Volcker, that banks should only take deposits and lend. At a time when the Federal Reserve is call for the break of big banks, other regulators are exploring the diversification of community banks. There is a double standard at work.

It is true deposits are up, but is this possibly due to lack of alternatives and unlimited insurance? As of December 2011, the top 50 bank holding companies are about $15 trillion dollars in assets. The top five banks are just about 57%, but the top ten banks are about 75%. One could say the top five are not a sufficient sample to house the perception of systemic risk. But including the top ten would be undeniably representative of banking. So again, why just the top five? Every legal action seems to involve the top five banks. They are visible-well known, just not completely representative of all banking.

If the Volcker rule is implemented it will tear up our largest banks.

Suppose banking controls about $15 trillion in assets and, as reported in the December 2011 Quarterly Banking Profile, those assets are almost evenly split between loans and "other assets." If Volcker went in as proposed now, these get divested. Five or six trillion dollars of assets move into the wild, outside banking and outside all monetary control. The single largest loss to America was AIG. There were no big bank losses — help, yes, but no losses. Do we reward AIG and the likes? How could any central bank claim ownership of any form of monetary policy when hemorrhaging such a volume of currency?

If banking shed 40-50% of all assets, what is the need for regulators? If Mr. Fisher wins, would he accept the first pink slip?

Congress presumes that if ordered, banks will shed the "other assets" and "other businesses." But what if banks keep the "other" and shed banking?

Lending remains unprofitable with such low interest rates. This is an uncomfortable truth.

Artificial financial conditions have caused deposits to mushroom. Some banks are talking of halting deposits, others are thinking of charging deposit fees. Between about 2009 and the end of 2011 bank assets have increased, but loans have decreased.

If the "other assets" represent viable businesses, why not dump banking and keep the profitable pieces?

Banking has had a traditional bifurcated revenue stream: fees and interest. The interest had been pushed and held below both market and acceptable levels. Then fee income received the hatched. Banks have then tried to move into diversified areas and are now told that is a poison pill. What is left? Congress needs to understand they have accountability and they are very close to restraint of trade.

Suppose one was to look back over the recent past and ask has big bank lobbing or representation been successful. The resounding answer is an absolute "no!" The proof is seen in the comments of Mr. Fisher.

It is time for insanity to end and reason to return. The large banks need a new trade representation. There is no time to waste.

Timothy Alexander is the managing director of Triune Global Financial Services, which provides appraisal services, forensic investigations and collateral review for banks.

 

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Comments (4)
Timothy,

Are you kidding me?

I can't believe what I just read!

The largest banks and financial firms in this country are well represented by their own in-house lobbyists, high-powered lobbying firms, the Financial Services Roundtable, the Financial Services Forum, and they control the legislative and regulatory agenda for the American Bankers Association. They have pleanty of representation in Washington D.C.

The reason why big bank lobbying and representation has not been successful in the recent past is that taxpayers, the press, and leguislators have finally realized that the greed, excess and irrational behavior of the largest banks and financial firms caused the mortgage meltdown, the financial crisis and the ensuing Great Recession - which we are still suffering through today.

These large and systemically risky banks and financial firms need to be broken-up and downsized - now to protect the American taxpayer and our economy.

David S.
Posted by tramcq | Tuesday, March 06 2012 at 11:36AM ET
David S. is correct, no one can seriously believe that the largest financial service companies don't have representation. They pay tens of millions of dollars a year for it, and they have finally been found out for what they are, greedy money suckers who work at trying to find pitty when their scemes are uncovered. They caused Dodd/Frank along with so many other regulations over the years. They can not be trusted and they should be broken up before one or more of them do unrecoverable damage. The constant cry that they will become not competitve with the rest of the world is just another lie to go with so many over the years! Doug M
Posted by dmanditch | Tuesday, March 06 2012 at 1:06PM ET
Ok, such a laughable proposal needs a laughable reply. Read into the following the opposite of what is suggested:

'Ofcourse, the top five banks need MORE of a voice in Washington. Their fungible voice does not quite drown out the peeping sound of human voices, and so their sway is slightly questioned by such things as prudent and worried regulators.'

'What if at the beginning of the 20th century Standard Oil had the voice that is being proposed by Mr. Alexander for big banks? The trust busting of those days might have been averted, Standard Oil's hegemony over the market and the nation would have continued and grown, and the price of gas could have gone to the equivalent of $5 / gallon by the 20's. Think of all the shareholder value this would have brought to... shareholders of Standard Oil. Think of the bonuses that could have been reaped by Standard Oil senior management.'

'This call to give greater voice to the biggest, most powerful, and LEAST voiceless banks is a chance to get the trust-busting question of our age right.... at least from the persepctive of the trusts. Are we going to repeat the "mistakes" of the past that led to increased competition and eliminated previous "too big to fail" institutions that undermined both the market and democracy, or are we going to defend this current guilded age? I put it to you... (until later when the big banks, their dominion secured, will again "put it to us"). '
Posted by j.doe | Tuesday, March 06 2012 at 1:15PM ET
Mr. Alexander has business interests he is trying to support.
He refers to a double standard. But the only double standard here has been on the side of big banks.
What more is there to say?

Terry G
Posted by tergri | Tuesday, March 06 2012 at 5:43PM ET
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