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Proposals to Break Up Big Banks Threaten All Banks

While I'm sure some community bankers applauded Sandy Weill's recent call to break up our nation's largest banks, I, for one, did not. On the contrary, I believe talk of breaking up large banks endangers the entire banking industry – large, small and everyone in between. 

While some banks made mistakes (and are largely out of business as a result), I am tired of seeing banks get kicked for errors made outside our industry and blamed for everything ailing the economy. 

Every bank plays an important role in our economy. While smaller banks can't provide the financing and specialized services that Michigan's auto manufacturers and large multinational corporations demand, we do supply the credit needed by the auto dealer, the parts suppliers and other businesses that provide critical support for these large companies. We provide loans to their employees and to the retail stores where they shop. Large, medium and small banks are connected in ways that are mutually beneficial and essential to the overall economy.   

Do any of us honestly believe that breaking up large banks wouldn't create a whole new set of problems for midsize and small banks? Our business has already been dealt a substantial blow by the Dodd-Frank Act, even though many in our industry thought its provisions were only directed at large institutions.  There's already over 8,000 pages of proposed and final regulations implementing Dodd-Frank.  Even the smallest community banks are now required to expend substantial time, cost and labor to make sure they don't run afoul of hundreds and hundreds of new rules.  Let's learn a lesson from this experience: We lose when we are divided by others.

The strength of the banking industry — and the American economy — lies in its diversity. As trusted and reputable providers of financial products and services, banks of all shapes and sizes are inextricably tied to the growth and prosperity of the communities we serve.  This interconnectivity and ability to easily meet the financing needs of everyone from local businesses to multinational corporations is what makes our country the world's premier financial center. 

Bankers need to stand up against all attacks on our industry and our banks—large or small. We should take every threat against any bank seriously. No matter what any policymaker promises, an attempt to break up the large banks would hurt each and every one of us. 

Art Johnson is the chairman and chief executive of United Bank of Michigan in Grand Rapids. He was the 2009-2010 chairman of the American Bankers Association. 


(14) Comments



Comments (14)
Breaking up large banks makes no sense. Size matters!
Posted by Old School Banker | Wednesday, August 01 2012 at 12:10PM ET
Should be pointed out that Art Johnson is a recent ABA Chairman. No surprise that he is once again carrying Wall Street Water. Wall Street says "jump" and Art says "how high?"
Posted by commobanker | Wednesday, August 01 2012 at 12:20PM ET
If the big banks acted responsibly, I doubt there would be such a call to break them up. If they were merely "banks" the argument to maintain them as-is would have more credibility. When they stray into derivatives and many other riskly areas they threaten the entire financial system. We really don't need to mingle investment banking and commercial banking. Isn't the argument a little flimsy that we need them to finance the auto industry? When we had a very healthy auto industry without these mega-banks, who funded the industry then?
Posted by John C | Wednesday, August 01 2012 at 12:48PM ET
Sandy Weill has it right. He knows from the inside view how the repeal of Glass-Stegall resulted in Wall Street mega-banks failing inside of just seven years following the laws repeal. Mr. Johnson's point regarding the inability for broken up banks to thrive and succeed is more than a little misplaced, consider that the United States largely led the global financial services sector for decades under Glass-Stegall and the banks, both investment and commercial varieties were enormously successful and profitable! Further, nearly every single deadline under Dodd-Frank has been missed and thus the industry as a whole has a lot to learn about how much of a threat the cumbersome legislation will be. One thing is for certain, breaking up the big banks and enforcing many parts of the Dodd-Frank bill will go a long way toward removing some of the risk the TBTF banks bring to our nation's and the global economy and to the taxers of the United States.

Mr. Johnson, past Chairman for ABA continues to carry Wall-Street's water with the voice of ABA and community bankers across the nation suffer as a result.
Posted by grsb | Wednesday, August 01 2012 at 12:50PM ET
Mr. Johnson's prior role with ABA gave him insights on the way Washington works (and doesn't work), and I think he's right -- any move to break up the big banks would have unintended, trickle-down effects on smaller banks. Also agree with his broader point that a divided industry is a defeated one. Barb Rehm, editor at large, American Banker
Posted by brehm | Wednesday, August 01 2012 at 12:52PM ET
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