Break Up Big Banks

Too Big to Fail is Too Big

2010-03-17T05:28:00.001-07:00

The too big to fail problem has been central to the degeneration and corruption of the financial system in the north Atlantic region over the past two decades. The ‘too large to fail’ category is sometimes extended to become the ‘too big to fail’, ‘too interconnected to fail’, ‘too complex to fail’ and ‘too international’ to fail problem, but the real issue is size. The real issue is size. Even if a financial business is highly interconnected, that is, if its total exposure to the rest of the world and the exposure of the rest of the world to the financial entity are complex and far-reaching, it can still be allowed to fail if the total amounts involved are small. A complex but small business is no threat to systemic stability; neither is a highly international but small business. Size is the core of the problem; the other dimensions (interconnectedness, complexity and international linkages) only matter (and indeed worsen the instability problem) if the institution in question is big. So how do we prevent banks and other financial businesses from becoming too large to fail?

Remedies for too big to fail

(1) Become too big to save
In a few cases, banks have been not just too big to fail, but also too big to save. The fiscal spare capacity of the state that ultimately backs the financial institutions deemed too big to fail turned out to be insufficient to save them. This happened in Iceland in September-October 2008. The four international banks of Iceland now have all defaulted on their debts. It could happen in other places. Anne Sibert and I have pointed to the dangers of the ‘inconsistent quartet’: a small open economy with a large internationally exposed sector, its own ‘small’ non-global reserve currency and limited fiscal spare capacity. Apart from Iceland, which imploded, this category includes Switzerland and possibly the UK. Ireland, the Netherlands and Belgium have 3 of the four inconsistent characteristics. But for their membership in the Euro Area, their banking systems might have been toast already. For the -US banks and most Euro Area banks, the banks top managers and boards know, however, that they are too big to fail but not too big to save. And they play that card for all it is worth to extract the maximum amount of resources from the hapless tax payer.

(2) Restore narrow banking or public utility banking
‘Public utility banking’ with just retail deposits on the liability side and with reserves, sovereign debt instruments and bank loans (secured and unsecured) on the asset side would take care of the retail payment, clearing and settlement system and deposit banking. Such narrow banking would represent an extreme version of Glass-Steagall approach. There would be deposit insurance and, should that fail, a lender of last resort and market maker of last resort. These tightly regulated institutions would not be able to engage in other banking and financial activities, and other financial institutions would not be able to take deposits withdrawable on demand or economically equivalent instruments.

These public utility banks could be publicly owned or privately owned, or could be managed through mutual arrangements (like the UK building societies or the Dutch Rabo Bank) or through cooperatives. Where the public utility bank is publicly owned, I would hope its management would be contracted out to a properly incentivised private concessionaire. Civil servants make lousy loan officers.

From the horror stories that have come out of at least five of the seven German Landesbanken, it is clear that public ownership and control is no guarantee for sound banking. They were brought down by two developments. The old and familiar problem was that they were pushed by cash-strapped Länder governments to engage in politically popular but financially non-viable regional projects. The second problem was that, far from remaining narrow banks, these Landesbanken engaged, sometimes through off-balance sheet vehicles, in increasingly reckless investment bank behaviour, including investing in financial instruments they did not understand. The problems of the German Landesbanken are mirrored in the disastrous shape many of the Spanish Cajas, mutually owned, co-operatively owned or owned or controlled by local or regional authorities, find themselves in.

Narrow banking or public utility banking would, be a key part of a safer and less morally hazardous banking system

(3) Create mono-product central counterparties and providers of custodial services, central wholesale and securities payment, clearing and settlement platforms
We cannot have essential financial infrastructure services provided by unregulated or lightly regulated profit-seeking private enterprises that may be engaged in a variety of other financial activities, many of them high risk, as well. The entities that provide these services have to be treated and regulated as public utilities. This includes the wholesale (interbank) payments, clearing and settlement systems (TARGET, in the Euro Area). It also includes the securities clearing and settlement systems and the custodial services essential to their performance (TARGET2 Securities in the Euro Area). The tripartite and quadripartite repo system is included.

If these services are to continue to be privately provided, the firms engaged in their provision should be strictly regulated and restricted to perform just the regulated tasks. There should be also be redundancy: for operational security reasons, there should be at least two physically, administratively and legally separate and independent providers of the entire suite of systemically essential services. There is no reason why the central bank would provide any of these services, although it could. Whatever entity provides these services should have open-ended and uncapped access to central bank liquidity, guaranteed by the Treasury.

What constitutes essential financial infrastructure services will change over time. In view of the problems created by the opaque over-the-counter markets in certain kinds of derivatives (e.g. credit default swaps (CDS)), centralized trading platforms, perhaps with a market maker of last resort, and with transparent clearing, settlement and custodial services-providing rules and arrangements will have to be created for many of these derivatives. These platforms should be viewed and regulated as public utilities.

(4) Keep a lid on the size of investment banks
Let’s call all other activities currently undertaken by the banking sector and the shadow banking sector will be called investment banking activities. It might seem that, since the products, services and instruments created exclusively by the investment banking sector are not systemically important, these investment banks could be left to play by the normal rules of the market game, with little if any regulation.

Unfortunately, this is not the case. Financial instruments that are not systemically important if a few trillion US dollars worth of them are outstanding, become systemically important when, as in the case of CDS at their peak, $60 trillion worth of gross notional exposure is outstanding.   Pure investment banks, even if they have been stripped of their ‘infrastructure services providing (including counterparty) roles, can be too large to fail. What is to be done about them.

5) Tax bank size
When size creates externalities, do what you would do with any negative externality: tax it.
The other way to limit size is to tax size. This can be done through capital requirements that are progressive in the size of the business (as measured by value added, the size of the balance sheet or some other metric). Such measures for preventing the New Darwinism of the survival of the fattest and the politically best connected should be distinguished from regulatory interventions based on the narrow leverage ratio aimed at regulating risk (regardless of size, except for a de minimis lower limit).

(6) Use competition policy
Strict and aggressive competition policy is another way to reduce size. Large banks can be broken up in a variety of ways (vertically, that is, by activities or products) or horizontally, that is, by splitting a given activity or the supply of a given product of service among several independent legal entities. The crisis and contraction are delivering the opposite outcome. There are fewer banks and market concentration is increasing everywhere. In the UK, competition among banks in the high street is going to be materially diminished by the acquisition of HBOS by Lloyds-TSB. With Bear Stearns, Lehman Brothers and Merrill Lynch gone as independent investment banks, concentration and monopoly power in the investment banking market has exploded.

Are mega-banks necessary for efficiency?
Would there be significant efficiency losses as a result of breaking up banks and taxing bank size?

What would be the social cost of taxing size in banking and other financial businesses and of breaking up banks? Why do banks and other financial enterprises become too big to fail? I believe there are four reasons
(1)   The exploitation of monopoly power (market power).
(2)   The exploitation of ‘synergies of conflict of interest’.
(3)   The exploitation of economies of scale and economies of scope.
(4)   The joys of being too big to fail and the implicit subsidy provided by the tax payer guaranteeing the bank against default and insolvency.

The pursuit of the benefits of subsidized liquidity and solvency support from the state clearly makes sense for the bank’s top management and board, for shareholders and for unsecured creditors: being too big, too interconnected, too complex and too international to fail is a major business asset.

The universal banks that dominate the European banking scene and much of cross-border banking are now also increasingly dominant in the USA, exist for three of the four reasons outlined above - all but the third. Economies of scale and scope have long been exhausted and diseconomies of span of control compete with lack of focus as the main drivers of organisational inefficiency. But by bundling the systemically important activities with the not systemically important activities, the entire organisation falls under the government’s bail-out umbrella. It is time to see a lot more and a lot smaller banks.

For the time being, banks that are too big, to interconnected, too complex or too international to fail are bound to be with us. For those I would support a proposal made by Raghuram Rajan and by Richard Herring, that such institutions be required to develop a bankruptcy contingency plan that would lay out how they would resolve themselves quickly and efficiently. Such a “shelf bankruptcy” plan would require banks to track and document their exposures much more carefully than they do now and in a timely manner. An insolvency plan is just as vital as a business plan for a financial institution in the too big to fail category. As Governor Mervyn King said in his 2009 Mansion House speech: everyone should have a will, including banks.

(7) Restrict limited liability to prevent excessive risk taking and reduce the size of banks
Incentives for excessive risk taking take many forms. An obvious one is limited liability. With limited liability, an investor (shareholder) can at most lose the value of his investment. The non-linearity in the pay-off function for the shareholder this creates, encourages placing more risky bets: losses beyond a certain magnitude are not born by the shareholder. Gains of any size are appropriated by the shareholders.

The combination of limited liability and leverage means that bets of almost any size can be placed by investors with this distorted, asymmetric payoff function. This can be done through conventional leverage (borrowing) or through leverage embedded in derivative contracts. A simple way to mitigate this problem is not to permit highly leveraged financial institutions (other than tightly regulated narrow banks, insurance companies and pension funds) to be limited liability companies. Instead, partnerships and other forms of unlimited, joint and several liability should be required. Partnerships and similar arrangements were the norm for investment banks until the 1990s. It is worth considering the removal of limited liability protection from highly leveraged financial entities with considerable asset-liability mismatch.   This would no doubt also help keep down their size, by any metric of size.

(8) Create effective special resolution mechanisms for all systemically important financial institutions
Failure of a systemically important financial institution, that is default on its debt or insolvency, is a no-no because under most past bank restructuring and insolvency procedures, it has meant the destruction or at least the serious impairment of the insolvent financial institution as an organisation. There is no reason why a bank or other financial institution could not continue to perform, without any interruption, its systemically important functions at the same time that the Administrator/Conservator of the special resolution regime (SRR) for this bank or ofi informs the unsecured creditors that they have become shareholders. Resolving the legal issue of insolvency of a bank should not, in an merely minimally intelligently designed legal and regulatory structure, mean the collapse of the organisation or even its paralysis for a single instant.

There has to be absolute clarity about the seniority of the different classes of unsecured creditors (which is another reason for taking the tripartite and quadripartite repos out of the banks), but once the seniority ranking of all the unsecured creditors is established unambiguously, restructuring an insolvent financial institution and recapitalising it out of the claims on the banks held by the unsecured creditors, need take no time at all.

The insolvent bank could continue to engage in new lending and new borrowing (perhaps with the new flows even guaranteed by the state) at the same time that the old unsecured creditors are taken to the cleaners, by having their claims written down or converted into ordinary equity.

Conclusion
In banking and most highly leveraged finance, size is a social bad. Fortunately, there is quite a list of effective instruments for cutting leveraged finance down to size.
Legally and institutionally, unbundle narrow banking and investment banking (Glass Steagall-on-steroids).
Legally and institutionally prevent all banks (narrow banks and investment banks) from engaging in activities that present manifest potential conflicts of interest. This means no more universal banks and similar financial supermarkets.
Limit the size of all banks by making regulatory capital ratios an increasing function of bank size.
Enforce competition policy aggressively in the banking sector, by breaking up banks if necessary.
Require any remaining systemically important banks to produce a detailed annual bankruptcy contingency plan.
Only permit limited liability for narrow banks/public utility banks.
Create a highly efficient special resolution regime for all systemically important financial institutions. This SRR will permit an omnipotent Conservator/Administrator to financially restructure the failing institutions (by writing down the claims of the unsecured creditors or mandatorily converting them into equity), without interfering materially with new lending, investment and funding operations.
The Geithner plan for restructuring US regulation is silent on the too big to fail problem. That alone is sufficient to ensure that it will fail to result in a more stable and safer US banking and financial system.

In the UK, the otherwise enlightened head of the FSA, Adair Turner, does not see a problem with banks of huge size and with a staggering range of unrelated or conflicted activities. Of all the parties that matter, only the Governor of the Bank of England, Mervyn King, is clear that ‘too big to fail’ is at the heart of the financial crisis we are trying to exit and will be at the heart of the next financial crisis that we are preparing so assiduously.

The Chancellor of the Exchequer, Alistair Darling takes the cake in the bigger is better stakes. He appointed “Win” Bischoff, the former chairman of Citigroup (appointed interim CEO for Citigroup in December 2007 after Chuck Prince bit the dust), to co-chair the writing of a report on UK international financial services - the future, published on May 7, 2009. That’s rather like asking the Ayatollah Ali Khamenei to write a report on who won the Iranian presidential election. It really is the most ridiculous appointment since Caligula appointed his favourite horse a consul. You will not be surprised to hear that the report does not consider the size of UK banks to be excessive.

International cooperation is necessary if we are to solve the too big to fail problem. I am not holding my breath.

via blogs.ft.com

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Help Your Community Not Big Banks - Move Your Money

2010-03-16T05:27:00.000-07:00

If you leave your money with the big banks, they will use it to pay lobbyists to keep Congress from fixing the system. Be a part of the solution and move your money.

For more info, go to http://moveyourmoney.info/

Big Banks Want You Back - But Don't be Fooled

2010-03-15T01:48:00.001-07:00

You may have noticed that big banks have started some new ad campaigns in the last couple months where they call themselves “community-minded.” We’re not fooled by it and we hope you aren’t either. Stacy Mitchell, at the New Rules Project’s Community Banking Initiative, takes a look:

They're using words like “local” and “community,” because they know quite well that there’s a rival for our affections. A recent Zogby poll found that nearly one in ten Americans had moved at least some of their business to small banks or credit unions.
One jilted lover, Citibank, has launched a blog devoted to showcasing the “new Citi.” The site, which Citibank is promoting through newspaper and magazine ads, features a video statement by CEO Vikram Pandit, who offers a few vaguely apologetic statements before detailing how Citi is a changed bank.
We’ve given up boozing and gambling, Citibank seems to be saying as Pandit assures us that the new Citi has embraced “a culture of responsible finance.”
Read more The facts, of course, show that the banks’ statements aren’t true. Big banks continue to do less small business lending than the little guys, and they charge more fees. Nothing “local” or “community” about that.

via moveyourmoney.info

Big banks are being deceptive by using all the right words or appearing to "change"
The only real change that's honest and good for all citizens is for us to move our money out of the big banking system as soon as possible!

Posted via web from Move Your Money NOW

Take Action Now - It's Time to Move Our Money to Local Banks or Credit Unions

2010-03-15T01:21:00.000-07:00

Break Up With Your Big Bank

"Too big to fail" financial services institutions have crashed the U.S. economy | BanksterUSA

2010-03-14T12:55:00.001-07:00

Toxic Assets Getting You Down?

"Too big to fail" financial services institutions have crashed the U.S. economy, throwing millions out of work, collapsing retirement funds and college savings accounts, and forcing many hard-working Americans into homelessness and poverty.

Due to the complexity of the financial issues and the lack of clear avenues for input, average citizens have had zero role in shaping the policy solutions being proposed by government and industry, even as we are stuck footing the bill for the largest Bankster bailout in history.

If you want to rein-in the Banksters and make sure they never get a chance to do it again, join us. We want www.BanksterUSA.org to be your go-to site for updates on the financial services re-regulation fight in Congress and for progressive net-roots campaigning against the big boys on Wall Street.

We are in a big hole and it is going to take big ideas to get us out of it. We will follow the debates in Congress and update our website with new information and concrete action items on a weekly basis. But we will also launch public education campaigns to put bigger reform ideas on the table, ideas like:

* a new Glass-Steagall Act for a new century ("Break Up the Banks")

* a financial transaction tax ("Repo the Dough"), and

* credit allocation policies ("Putting Wall Street to Work for Main Street.")

Sign up for our regular email alerts and action items under "Get Email Updates" above. Your voice is needed in these debates to ensure that the interests of Main Street are prioritized over the narrow, special interests of Wall Street.

The www.BanksterUSA.org site and our larger Real Economy Project are part of the Center for Media and Democracy (CMD). CMD is a national organization based in Madison, Wisconsin. It was founded by John Stauber in 1993 as an independent, non-profit, non-partisan, public interest group. Lisa Graves became Executive Director of CMD in July, 2009. She previously served as a senior advisor in all three branches of the federal government, as a leading strategist on civil liberties advocacy for the ACLU and others, and as an adjunct professor at George Washington University Law School. Mary Bottari is responsible for the content on BanksterUSA and is the Director of the Real Economy Project for CMD. She formerly worked on global trade issues for Public Citizen's Global Trade Watch division and as Press Secretary for U.S. Senator Russ Feingold.

CMD's mission includes promoting transparency and informed debate by exposing corporate spin and government propaganda. We work to inform and assist grassroots citizen activism in promoting economic justice, public health, ecological sustainability and human rights. CMD publishes SourceWatch.org, PRWatch.org, the Weekly Spin, and now BanksterUSA.org.

Inquiries about this site can be directed to info@banksterusa.org.

Center for Media and Democracy , 520 University Avenue, Suite 227,  Madison, Wisconsin 53703

 Phone: 608-260-9713,  Fax: 608-260-9714

via banksterusa.org

Be sure to check out my newest blog advocating financial reform and moving our money out of big banks and into Community Banks and Credit Unions - http://breakupbigbanks.blogspot.com/

Posted via web from Move Your Money NOW

Homeowners Walk Away

2010-03-14T11:38:00.000-07:00

This is such a tragedy that so many homeowners are being forced to walk away from their homes while big banks flourish and prey on homeowners.

USbank Fails in Customer Service, Preys on Homeowners

2010-03-14T11:17:00.001-07:00

USbank is part of the problem of banks that are too big. Want to be treated like a human being? Then avoid this bank - especially if you are considering getting a Mortgage loan.

This bank dishes out poor customer service and will NOT work with homeowners for any sort of temporary mortgage loan modifications. Instead, this bank works hard to force homeowners into foreclosure.

We're only 1 of many examples. Read more on my blog - http://breakupbigbanks.blogspot.com/2010/03/us-bank-forces-foreclosure.html

Don't feed these greedy big banks. You're not human to them. Instead, put your money into Community Banks and Credit Unions. Read more here - http://www.anewwayforward.org/ and http://www.banksterusa.org/

in reference to: U.S. Bank Personal Banking (view on Google Sidewiki)

A New Way Forward: 4 Dangers of Big Banks

2010-03-14T03:29:00.001-07:00

via anewwayforward.org

4 Dangers of Big Banks:

1. Big banks are dangerous to our democracy. They have drowned out 95% of Americans, turned government into a feeding trough for the financial elite, and turned economic growth into deficit.

2. Big banking is so dangerously large that too much of America's wealth is tied up in it to serve the wealthy few.

3. Big banking is the biggest lobby and dangerously lobbies against the majority, to make dangerous practices legal. Big banking controls more than 40% of GDP as profit. There is little competition and they can overprice -- their highest fees and rates go to create cycles of debt.

4. Big banks dangerously invest in more big banking, and do very little lending to small and medium businesses -- the real engine for jobs and a safe and prosperous economy. Breaking them up and closing the feeding trough means opening up the market to many more small and medium sized banks and small and medium-sized businesses and jobs for people.

Posted via web from Move Your Money NOW

Break Up the Banks - The Too Big To Fail Problem Can't be Ignored

2010-03-14T00:13:00.001-08:00

Too big to fail (TBTF) banks were key to causing the financial crisis and spreading the contagion around the globe. Yet what has happened to the biggest banks in America? You guessed it – they have gotten bigger. After absorbing Merrill Lynch, Bank of America is now the largest bank in the United States. After gobbling up Washington Mutual and Bear Sterns, JP Morgan Bank is second. Wells Fargo took over Wachovia and the zombie bank Citi (theoretically) rounds out the top four.

According to Nobel prize winning economist Joseph Stigliz: “In the U.S. and many other countries, the too-big-to-fail banks have become even bigger. The problems are worse than they were in 2007 before the crisis.”

Size Matters
No company should be permitted to get big enough to imperil the financial system. No company should be permitted to get “interconnected” enough to crash the global economy. And the bigger the company, the more concentrated the political power; the more lobbyists the firm can field; the more campaign cash their employees can provide to key policymakers. It is not surprising that the TBTF financial service institutions represent some of the largest donors to both Democrats and Republicans in Congress. Check out the campaign finance numbers here. On the flip side, there is the simple fact that smaller banks tend to charge lower fees, charge lower interest rates on loans, and pay higher rates on deposits than small banks. Size matters, and if the President and Congress fail to address size, then they have learned little from the crisis.

Overall, the Obama administration is proposing little to reduce the size of behemoth banks and financial institutions. Instead of breaking up TBTF institutions, the Obama plan calls for them to be given special status and regulated by the Federal Reserve. Top White House economic adviser and former Federal Reserve Chair Paul Volker says this approach will invariably lead to future crises and bailouts.

Volcker testified that by designating some companies as critical to the broader financial system, and given over to the Federal Reserve to regulate, the plan creates an expectation that those firms would be guaranteed government backing in tough times. Not only does this pattern of protection “encourage greater risk-taking” and put community and regional banks at a competitive disadvantage, but “ultimately the possibility of further crises, even greater crises, will increase.”

Even former Federal Reserve Chair Alan Greenspan, the man who failed to use his powers to defuse the housing bubble and thus had a major role in creating the current crisis, says the too big to fail problem needs to be addressed. Greenspan said in October 2009: “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.”
What We Can Do: A New Tool Kit to Cut the TBTF Boys Down to Size
In November of 2009, the European Union was busy breaking up many of their largest financial institutions to recoup taxpayer bailout money and to restore competitiveness in the industry. In the United States, the U.S. Congress was debating the Obama plan which would do little to rein in "too big to fail" institutions. On November 6, 2009, U.S. Senator Bernie Sanders (I-VT) took matters into his own hands and introduced a simple bill that directs the Department of the Treasury to identify too big to fail institutions within 90 days, and take measures to break them up within one year. Sander's bill throws down the gauntlet. It challenges the Treasury Department and the Obama administration to dismantle these institutions so that they no longer pose a threat to the U.S. or global economy. Congress and theTreasury Department have a variety of options to accomplish this goal.
Create New Glass-Steagall Separations for a New Era
In response to the rampant gambling with depositor’s money that led to the stock market crash of 1929, President Roosevelt pushed for new consumer protections including a new law named Glass-Steagall after its primary congressional authors. The 1933 Glass-Steagall Act separated Main Street commercial banks from more risky investment banks, so banks could no longer gamble with the life savings of average Americans. The Act also prevented the merger of banks and insurance firms and created the Federal Depositors Insurance Corporation (FDIC). In other words, Glass-Steagall divided the landscape into the more risky players and the less risky players, then provided government backing for the less risky players.

Glass-Steagall ushered in a new era of remarkable financial stability that lasted almost 60 years until deregulation and rampant corruption generated the Savings and Loan crisis of the late 1980s. In 1999, U.S. Senator Phil Gramm (R-TX) with the backing the Clinton administration led the effort to “modernize” financial regulations and repeal many of the Glass-Steagall separations. At the time, U.S. Senator Byron Dorgan warned that the repeal could be disastrous: “I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930s is true in 2010.”

The repeal of Glass-Steagall quickly led to the creation of giant financial service institutions that are so complex they are not well understood by their CEOs or their governing boards and risk was difficult to assess and manage. When Citicorp bought Travelers Insurance forming Citigroup, Forbes magazine wrote: "We are at ground zero of one of the most fascinating business and management stories ever to come along." Today Forbes asks: “Can anyone run Citigroup? We know this banking giant is too big to fail. But is it also too big to manage?” Similarly, former AIG’s CEO Edward Liddy recently wrote in the Washington Post about the financial services and insurance behemoth: “The company's overall structure is too complex, too unwieldy and too opaque for its component businesses to be well-managed as one entity.”

The elimination of the firewalls between risky investment banking and boring commercial banking continues to put taxpayers at risk. The FDIC has insured $25 billion of Goldman Sachs’ debt, none of which is in the form of deposits and which it reportedly uses to engage in highly speculative trading in commodities such as oil. If Goldman benefits from its oil speculation, consumers lose in the form of higher gas prices. If Goldman fails in its oil speculation, taxpayers will lose again if they are forced to bailout the firm. This is exactly the sort of mingling of government insurance and speculative investment banking that Glass-Steagall was designed to prevent.

Obama adviser Paul Volker has called for a new Glass-Steagall for a new century. Key to the notion is to exclude from commercial banks risky activities such as ownership or sponsorship of hedge funds and private equity funds. To date however, neither Congress nor President Obama have taken up the idea.
Apply Absolute Size Limits
Absolute limits on size are another useful tool, with the larger institutions broken up into smaller ones that can be allowed to fail without jeopardizing the stability of the financial system. We already a law in the banking sector, the 1994 Reigel-Neal Act restricts any bank from holding, through mergers, more than 10% of the nation’s bank deposits. This restriction was ignored in the financial crisis, as Bank of America was allowed to merge with other institutions that likely pushed it over this limit. It is important that the current limit on size be enforced, and that it be strengthened.

To ensure that banks are below a “too big to fail” threshold, it would be reasonable to apply a cap of 5 percent of total bank assets since a substantial portion of the funding for large banks does not come through traditional deposits. Such limits would affect a small number of banks (4-6 banks) given the current levels of concentration in the industry. Other size limits would be useful as well, such as limits on each institution’s size as a fraction of the overall financial market.
Rein in the Gambling with Significant Capital Requirements
Lawmakers must also ensure that extremely large banks and other financial institutions carry their own risk along with them as they grow, and create certain requirements for capitalization, risk, and tax liabilities that are directly related to size.

Even conservative economist Gary Becker supports progressive capital requirements on institutions based on size. Without adequate capital financial institutions can be subject to an electronic “run on the bank” threatening not just one institution, but in the case of too big to fail banks, potentially the entire financial system. The largest institutions should have a lower capital to asset ratio than small and medium sized firms. While this doesn’t protect against absolute failure, it addresses the problem caused last year and this year where institutions whose failure might threaten economic collapse “had to” ask the government for bailouts. Those that are highly leveraged are constitutionally unstable, as they do not have the capital to cover any major shock to the system.

While the Obama administration has said that capital requirements are a key piece of legislation needed, they have been slow on moving on that front. Currently the biggest banks have a capital requirement of about 4%. Reportedly, the Obama Treasury Department is thinking of raising that to 8%, but many doubt that 8 is enough. Swiss banks for instance have the highest capital ratios in Europe. Recently, Credit Suisse's Tier 1 ratio stood at 15.5% while UBS's ratio stood at 13.2%. This aspect of financial services reform is critical. It is important that America lead with the best and not lag with the worst in setting this measure of safety and soundness.

While capital requirements are important, they are not sufficient and must be combined with Glass-Steagall, anti-trust and other reforms. Greenspan warns that capital requirements alone could have only a modest impact. October 2009 Greenspan said: “I don’t think merely raising the fees or capital on large institutions or taxing them is enough. I think they’ll absorb that, they’ll work with that, and it’s totally inefficient and they’ll still be using the savings.”
Modernize Anti-trust Policies
Back in the late 1800s early 1900s, “trust busting” was in vogue. Huge firms called trusts or monopolies controlled significant sectors of the economy and the government developed new laws to break them up and foster competition. The focus was on monopolies and “anti-competitive behaviors,” such as price fixing and agreements in restraint of trade.

These laws – such as the 1890 Sherman Act and the 1914 Clayton Act – were constructed in a different era, but are still our primary anti-trust policies today. Much has changed in the American market place. These old authorities cannot easily address some of the problems we are facing now. Giant mergers in acquisitions in the financial sector have changed the landscape, but even though the four largest banks hold about 60% of assets in the U.S. banking system, that has not been concentrated enough to attract the attention of the anti-trust officials at the Department of Justice.

This is why some are calling for the development of a new anti-trust law to supplement the earlier laws: “A new anti-trust policy, one that takes scale into account, would protect against any corporation becoming too big to fail. It would also protect against some of the systematic lobbying, direct and indirect, of Congress by the major companies,” explained one law professor.
BANKSTER WONK ROOM
Paul Volcker, House Finacial Services Committee Testimony, September 24, 2009.
Zephyr Teachout, "Trustbusting 2.0," The Nation, April 7, 2009.
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via banksterusa.org

We can take action. What We Can Do: A New Tool Kit to Cut the TBTF Boys Down to Size

Posted via web from Move Your Money NOW

Senator Sanders Unfiltered: Break 'Em Up!

2010-03-13T22:36:00.001-08:00

via youtube.com

No reason to keep bailing out the big banks.

Posted via web from Move Your Money NOW

US Bank Forces Foreclosure

2010-03-13T21:35:00.000-08:00

After layoffs began at my husband's workplace, we knew it was only a matter of time when he too would be laid off, especially since he had not been employed as long as others. Luckily, about the same time, he was offered a job with the Federal Government. Of course he accepted a stable job opportunity.

The only problem was the the starting pay was much less than what he was currently making. But, after a couple of years, the pay would be significantly more than the original workplace. So, knowing this decrease in pay was a temporary situation, we immediately reached out to the bank to discuss a temporary loan modification solution while the income was less.

That was over 10 months ago. During this time, US Bank has refused to work with us whatsoever. We gave them the paperwork they wanted. US Bank lost the paperwork, stalled, never returned our calls, etc., etc. We bent over backwards to find someone who would work with us. Only once did we find a team leader who helped us by getting the bank to accept our mortgage payment (US Bank stopped accepting our payments when we got more than 1 month behind on payments).

US Bank's only actions have been to force us into Foreclosure by refusing to accept our mortgage payments, refusing to work with us on a temporary loan modification, denying us any customer service whatsoever, never returning calls, etc.

US Bank is part of the problem of the big banks ripping off consumers, forcing families into foreclosure and dishing out notorious or non-existent customer service.

Don't do business with this bank. If you already have money in this bank, pull it out and put it instead in a small community bank or Credit Union.

Keeping our money in these big banks only feeds their greed and hurts everyone.

Presidential Reunion

2010-03-13T20:28:00.000-08:00

Barack Obama gets a surprise visit in the night from ex-Presidents Bush Sr., Bush Jr., Clinton, Ford, Reagan and Carter to get a few pointers about the Consumer Financial Protection Agency and why it's so important.

A creative way to deliver a serious message through comedy!

Funny or Die's Presidential Reunion from Will Ferrell