In a speech today, Federal Reserve Board member Jerome Powell said that lawmakers may want consider new measures to break up the nation’s biggest banks. While he has confidence in the new rules laid out by the Dodd-Frank Wall Street reform law, Powell said that “public discussion and evaluation of these ideas [to break up banks] is important”:
Some urge the adoption of more intrusive reforms, such as a return to Glass-Steagall-style activity limits, more stringent limits on size or systemic footprint, or a requirement that the largest institutions break up into much smaller pieces. I believe that public discussion and evaluation of these ideas is important. At a minimum, we need to thoroughly understand these alternatives in case the existing reform project falters. [...]
My own view is that the framework of current reforms is promising, and should be given time to work. In any case, too big to fail must end, even if more intrusive measures prove necessary in the end.
Federal Reserve Board member Daniel Tarullo also recently floated the idea of capping bank size as a percentage of the economy.
Last week, Sen. Sherrod Brown (D-OH) took to the Senate floor to excoriate banks that he believes are still too-big-to-fail. “Wall Street has been allowed to run wild for years. We simply cannot wait any longer for regulators to act. These institutions are too big to manage, they are too big to regulate, and they are surely still too big to fail,” he said. He’s been joined in his criticism recently by a diverse set of lawmakers, including Sens. Elizabeth Warren (D-MA), Joe Manchin (D-WV), and David Vitter (R-LA).
According to data from the Dallas Federal Reserve, the largest 0.2 percent of banks — just 12 mega-institutions — now control nearly 70 percent of all banking assets. Just the six biggest banks holds assets that total 60 percent of the entire economy:
Bloomberg News recently estimated that the biggest banks receive a funding advantage of $83 billion annually simply by virtue of being perceived as too-big-to-fail. “Should those biggest financial institutions be repaying the American taxpayer that $83 billion subsidy that they are getting?” asked Warren last week.