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Romney Adviser Scoffs At Notion Of Capping Bank Size

Federal Reserve Board governor Daniel Tarullo last week suggested placing limits on the size of the nation’s biggest banks, making him one of the highest-ranking American economic policy officials to endorse such a step. But the Romney campaign will not be jumping on board with the idea any time soon, according to Glenn Hubbard, one of its chief economics advisers:

“I understand Dan Tarullo gave those remarks. I disagree with them. First of all I’m not quite sure what a cap would be and how I would figure it out,” Hubbard said in response to a question at a National Association for Business Economics conference.

“The reason we’re concerned about big banks is that they’re too big to fail,” he added. “If the market forces say these banks are too big and too complex, they will be wittled down to size. And I think that’s a much better (solution) than arbitrary limits on bank sizes.”

Hubbard seems to have forgotten that the market did not whittle banks down before the financial crisis of 2008, which then showed that the banks were absolutely be too-big-to-fail. As David Min explained when other conservatives made similar comments, “While this line of thinking is intrinsically appealing in its simplicity, it reflects a dangerous ignorance of what happened in the financial crisis of 2008 and of what it means to be ‘too big to fail.’”

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President Obama, of course, has not endorsed breaking up the nation’s biggest banks or capping their size, but the Dodd-Frank financial reform law, which he signed, includes a provision aimed at preventing banks from engaging in risky trading with federally backed dollars. Romney has pledged to repeal Dodd-Frank, while laying out no plan for what he would put in its place.

A slew of former Wall Street bankers — including those who were instrumental in the creation of too-big-to-fail — have recently said that the biggest banks should be broken up. The six biggest banks are back to making pre-recession profits, even as they complain about new regulations.