'Let's Put Santa in Charge of the Fed': Comments of the Week

American Banker readers share their views on the most pressing banking topics of the week. Comments are excerpted from reader response sections of AmericanBanker.com articles and from our social media platforms.

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On the argument that taxpayers remain on the hook for bank failures: On the argument that taxpayers remain on the hook for bank failures:

"Another basic principle of economic efficiency is to try to internalize all the real costs of economic activity. Unfortunately customers, shareholders and executives are easily able to externalize much of the real costs of their activity when they have the moral hazard of deposit insurance and government bailouts. Now if we could eliminate ["too big to fail"] this might be different. But if one thinks this will happen in today's environment then let's put Santa in charge of the Fed."

Related Article: Let Customers Not Regulators Decide the Right Size for Banks

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On ways to reduce moral hazard and complexity in the banking system: On ways to reduce moral hazard and complexity in the banking system:

"Let's eliminate deposit insurance and most regulation, with a three-year sunset period to allow the industry time to restructure itself. Then billions of dollars of waste disappear, thousands of bureaucrats have to get real jobs, and risks are taken at the shareholders' expense."

Related Article: Let Customers Not Regulators Decide the Right Size for Banks

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On whether consumers are actively choosing bigger banks or simply being funneled into them: On whether consumers are actively choosing bigger banks or simply being funneled into them:

"Banks grow by mergers and acquisitions. That traps people in larger banks without their will. Now the five largest banks hold nearly half of deposits. Moving out of a ["too big to fail"] bank is very difficult, especially for users of online banking. Inertia holds people in place."

Related Article: Let Customers Not Regulators Decide the Right Size for Banks

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On the attractions of holding multiple accounts with larger and smaller banks: On the attractions of holding multiple accounts with larger and smaller banks:

"Most people should have more than one account. The small-town bank or credit union with personalized service and affordable interest rates. And a larger international/worldwide option for traveling abroad."

Related Article: Let Customers Not Regulators Decide the Right Size for Banks

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On the Consumer Financial Protection Bureau's decision to exempt some remittances from its international money transfer rule for five more years: On the Consumer Financial Protection Bureau's decision to exempt some remittances from its international money transfer rule for five more years:

"All that will happen in 2020 is that banks and credit unions will simply stop offering wire transfers to consumers, or will only offer wires transfers to overseas institutions that have signed an agreement regarding fees. Can you say 'price fixing?' The ironic beneficiary of all of this are those closed-system providers who were the very systems conducting the abuses that lead to this rule. Because when banks and credit unions stop offering wire services, those closed-systems will gladly step in to pick up the business. Nicely played."

Related Article: CFPB Extends Remittance Rule Exemption

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On the limited appeal of de novo banks as an investment: On the limited appeal of de novo banks as an investment:

"The average [return on equity] for a bank is 9%, which is close to cost of equity: who in their right mind wants to make an investment like that?"

Related Article: Behind the Death of De Novos

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On the idea that reports of the death of community banks are greatly exaggerated: On the idea that reports of the death of community banks are greatly exaggerated:

"There are just under 300 banking institutions operating in Iowa alone. Iowa! Who will buy all these little banks? No one. Large banks are simply too large to care about all the small banks. So unless we see lots of small bank failures, or multiple rounds of mergers-of-equals that build institutions large enough to attract the attention of larger banks, we will have thousands of U.S. banks for decades."

Related Article: Behind the Death of De Novos

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On whether Bank of America's $17 billion mortgage-backed securities settlement will truly allow it to move past legacy issues: On whether Bank of America's $17 billion mortgage-backed securities settlement will truly allow it to move past legacy issues:

"It is understandable that B of A wants to spin its most recent, record-breaking settlement as a turning point, because that would divert attention from the problems that still hang over the bank's head, including charges of discriminatory mortgage lending practices against Hispanics, an ongoing probe relating to rigging of Libor, and its dubious distinction as the most hated bank in America in terms of the numbers of consumer complaints to the [Consumer Financial Protection Bureau]."

Related Article: Moynihan's Next Act: Fixing B of A's Business

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On the argument that bankers often have overblown reactions to regulatory guidance on vendor risk management: On the argument that bankers often have overblown reactions to regulatory guidance on vendor risk management:

"If regulators do not like your vendor, or the products your vendor supports, there is no commercially reasonable amount of third-party vendor risk management that accomplish the task of demonstrating adequate due diligence. Alternatively, if your vendor has taken the appropriate steps to enjoy a fair to positive reputation among the regulatory circles, the logical approach presented here will suffice."

Related Article: When Vendor Risk Management Goes Too Far

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On the political risks of using taxpayer funds to raise short-term interest rates: On the political risks of using taxpayer funds to raise short-term interest rates:

"The article fails to mention how much of the $2.7 trillion in excess reserves are maintained by foreign banks with U.S. branches. Think of the political optics of taxpayers paying foreign banks, including many that are state-owned and considered adversaries, huge interest payments just to implement [the Federal Reserve's] monetary policy."

Related Article: Why Taxpayers Will Be on the Hook When It's Time to Raise Rates

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American Banker readers share their views on the most pressing banking topics of the week. Comments are excerpted from reader response sections of AmericanBanker.com articles and from our social media platforms.

Comments (1)
Santa IS in charge of the Fed already.
Posted by tk101 | Friday, August 29 2014 at 10:30AM ET
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