When I see my name in print included alongside names like Sheila Bair, Tom Hoenig, Richard Fisher, and Simon Johnson, I take notice.
In her recent American Banker opinion piece titled "Carving Up Big Banks Won't Work, Any Way You Slice It," Barbara Rehm included my name in the same company of two Federal Reserve Bank presidents (one of which is now an FDIC director), the immediate past chairman of the FDIC (who almost certainly will be regarded by historians as one of the most effective and capable FDIC chairmen in history), and the former chief economist of the International Monetary Fund, now a professor at MIT. I am honored and humbled to be mentioned among those names because we all agree that the only real and effective way to end the policy of too-big-to-fail, which even the apologists admit exists, is to downsize or break up these institutions, which are bigger than the agencies that regulate them.
The very fact that terms like "too-big-to-fail" and "systemically important financial institutions," which is just a politically correct way to say systemically dangerous, are in the financial lexicon is proof enough that our financial system is badly out of balance and that a very small handful of banks are now beyond the ability of regulatory agencies to adequately and effectively impose regulatory discipline on them.
If regulatory agencies could effectively control these firms, then why are these terms still in use? Well, the facts tell the story. Since 2002 the six largest banks have been hit by at least 207 separate fines, sanctions or legal awards totaling $47.8 billion. None of these banks had fewer than 22 infractions each. One had 39 across seven countries. Just over the past two years, the top six banks have been cited 1,150 times by the Wall Street Journal and New York Times in articles about their improper activities. As one CNN opinion column headline put it "What Happens When Big Banks Break the Law? Not Much." Citi has been bailed out by taxpayers four times in its history, the most recent in 2008-10. Absent breaking Citi up, does anyone want to take the bet that there won’t be a fifth time someday?
So, again, with all due respect to Ms. Rehm's opinion piece, it is terribly naïve to think that any government will actually fail (in the classic sense) a bank that is, by definition, too big to fail. Because if they are too big to fail, they are too big to control (as recent history shows). This nation recognized that monopoly or oligarchies in commodities like oil or in sectors like communications was not good for free markets, and therefore our government moved to break up Standard Oil and AT&T. The result in both cases was that the parts became economically more valuable than the whole, and in both cases the free market and job creation flourished.
In recent years even Alan Greenspan has become an advocate of breaking up too-big-to-fail firms. In his own words, Greenspan said "If they’re too big to fail, they’re too big. In 1911 we broke up Standard Oil—so what happened? The individual parts became more valuable than the whole. Maybe that's what we need to do."
So, I am honored to be counted among some of this nation's most brilliant financial policymakers and academics in calling for the true end of too-big-to-fail so that our free markets can really be free and robust.
Camden R. Fine is the president and CEO of the Independent Community Bankers of America.