Across the board, the GOP’s 2012 presidential candidates have denounced the Dodd-Frank financial reform law, enacted to prevent a repeat of the 2008 financial crisis. However, none of them has come up with a plan to replace it, save one: former Utah Gov. Jon Huntsman, who is hanging his campaign on a strong showing tomorrow in the New Hampshire primary.
In a Fox News op-ed, Huntsman explicitly said that he would like to “break up the big banks” by imposing a fee on banks whose size hits a certain percentage of GDP:
As president, I will break up the big banks, end future taxpayer bailouts, and restore capitalist principles – competition and creative destruction – to our financial sector.
We will accomplish this by imposing a fee on banks whose size exceeds a certain percentage of GDP, proving them an incentive to slim down and localize.
This is akin to the “bank tax” that lived a short life during the financial reform debate. While it wouldn’t be as clean a break as reimposing the strict divide between investment banking and traditional commercial banking, if it were large enough, a fee like the one Huntsman proposed would provide an incentive for banks to shrink — or if not, could be used to build up a pot of money that could be tapped to dismantle a big bank that is going under, instead of resorting to ad hoc, taxpayer funded bailouts.
As Reuters’ Felix Salmon put it, Huntsman “goes where Obama dares not tread.” Indeed, Obama has never called for breaking up the biggest banks — or “right sizing” them, as Huntsman puts it — preferring instead to craft a regulatory framework in which big banks can exist without having one of their failures doom the wider economy.
But that fact is that the biggest banks are still big enough to pull down the financial system, and while Dodd-Frank went a long way to make it possible to dismantle those banks without taxpayer funds, it didn’t do much to reduce the dangerous co-mingling of investment and commercial banking (which even 90s deregulator Newt Gingrich now admits it was “a mistake” to permit in the first place).