It seems there is a social stigma against bankers. One may vilify the leaders of the largest banks, but in the end they are business professionals. They know the difference between a business opportunity and a lost cause. Traditional banking – retail banking – is currently a lost cause. Income is falling beyond imagination. At two separate conferences this month, the consensus was that with record low interest rates, lending is a loss leader. The hope is to gain other services – fee-based services. So if cornered, would banks shed the "other" which is profitable, or shed the traditional banking?
Suppose the red and blue American bank or the stagecoach bank gave up its charter and deposits and kept only its profitable lines. These businesses would shed 75% or more of the regulation they now must comply with. What's the down side? There is an old saying that when heaven wishes to punish us they grant our prayers.
So if there may be an argument against breakups, what is left? How do we achieve the desired goal of safety and soundness? I believe the problem is not "too big to fail" (which would not be a solvable problem) but "too big for oversight" (which is).
How many times over the past few years have any of the top 10 banks had to restate call reports or SEC filings? If accountants can audit, supervisors can examine.
The Federal Reserve has a brilliant pilot program: Collection of line item details on commercial loan portfolios – information such as date, size, collateral type, loan rating, etc. This program should be expanded to include mortgages, derivatives, and other assets. I am encouraging banks to set up a clearing house that would make this data available in real time for regulators.
President Fisher, I urge caution. There is no evidence such an action as you propose would end with the desired effect.
Finally a closing riddle: What do you call a regulator with nothing to regulate? Unemployed! If the banks surrender deposits and charters, you will not need much of a staff. But keeping the big banks intact is guaranteed employment.
I would welcome the chance to speak with you, your staff, or any reader.
Tim Alexander is a managing director and an economist at Triune Global Financial Services, a consulting firm for banks and regulators.
This is false, as is the idea that firms like AIG repaying highly subsidized loans is evidence that their bailouts made money for taxpayers. The concepts of too big to fail and systemic risk can and have been modeled as a taxpayer put and quantified by applied econometricians .
As an alternative to a government-directed breakup,US Corporate law could be strengthened to recognize that taxpayers have an "equitable interest" in every financial firm that is economically, administratively, or politically difficult to fail. Establishing this collective right would change risk-taking incentives at firms protected by the safety net and establish enforceable duties of loyalty and care to taxpayers for managers and regulators. It is patently unjust for financial-institution managers and regulators not to be formally responsible for monitoring, publicizing and servicing the value of taxpayers' credit support at difficult-to-fail firms. The failure to establish these duties is what prevents managers whose risk-taking or negligence exploited the safety net from being held accountable in the courts.