Public Growing Increasingly Sick of Too-Big-To-Fail Disease

Well, it’s official: the community banking industry’s push to end the too-big-to-fail plague once and for all has gained momentum. From regulators and industry advocates to members of Congress and the news media, it’s evident that Washington is abuzz yet again on the controversial topic of too-big-to-fail. And it’s not only Washington that has opinions on the issue. A recent study shows widespread support for ICBA’s campaign to break up the largest megabanks to address this scourge and put the word “free” back in front of “markets” once again.

The Rasmussen Reports survey found that half of all U.S. adults favor breaking up the 12 largest megabanks, which control nearly 70 percent of the banking industry, while only 23 percent were opposed. This is up from an October 2009 poll, in which 43 percent of Americans said that banks considered too big to fail should be broken up into a series of smaller companies. In addition, 55 percent said the government should let too-big-to-fail banks go out of business if they can no longer meet their financial obligations.

This tells me one thing: the American public is getting fed up. For community bankers who live and breathe financial news and policy on a daily basis, the too-big-to-fail epidemic is top of mind. We see the impact on our financial system day in and day out—in our regulatory workload, in our cost of funds relative to the megabanks, and in the inequitable treatment of Main Street and Wall Street. Now it appears the average Joe and Joanne have had their fair share of it too—and they are just as sick of it as is their community banker down the street.

Americans don’t typically spend their days pondering things like financial services policy, systemic risk and moral hazard. At least, not until these things begin to have a noticeable impact on their day-to-day lives. And I think that’s what is starting to happen.

After the worst financial outbreak since the Great Depression was headed off by trillions of dollars in taxpayer assistance to the institutions that caused it, Americans began to take notice. After reports that JPMorgan Chase hid from regulators $600 million in what would balloon to $6.2 billion in losses on high-risk trades funded in part by federally insured deposits, the public began to wonder. After the U.S. attorney general flat-out told Congress that the largest financial institutions are above the law because of their size, the American public began to demand action to address what is an obvious and fundamental distortion of our financial markets. The public has begun to realize that our “free” markets are anything but free.

This should come as no surprise to anyone, even the “untouchables” on Wall Street. The too-big-to-fail disease touches each one of us because it represents a taxpayer-funded interference in the free market that increases financial risks. This affects our jobs, our communities and our future. There is also the issue of judicial fairness, of Main Street community bankers rolling up their sleeves to disinfect the mess while Wall Street titans are rewarded for their ruinous practices.

At any rate, the Rasmussen poll shows that Americans are sick and tired of our too-big-to-fail problem. They are witnessing the impact first-hand and want a cure. And they are beginning to understand that only by restructuring these institutions can we eliminate their taxpayer-funded backstop against failure, restore our free market–based financial system and inoculate our economy from its too-big-to-fail problem for the long term.