With the too-big-to-fail threat continuing to hang over the U.S. financial system, the question on the minds of many Wall Street watchers has been: What will it take for Washington to act?
The Wall Street financial crisis of 2008-10 has brought us a bevy of financial regulatory reforms and new capital rules, but still our largest and riskiest institutions continue to grow and incur even greater risks. With the public clamoring for decisive action, the conventional wisdom has been that it would take another major scandal to spur Washington to act on too-big-to-fail once and for all.
With its penchant for excessive greed and recklessness, Wall Street has certainly done its part. In a matter of months, the megabanks have brought us:
- JPMorgan Chase’s multi-billion-dollar “London Whale” trading losses funded partly by federally insured deposits,
- anticompetitive behavior in the commodities market that has driven up consumer prices on everything from electricity and gasoline to Budweiser and Coca-Cola,
- fines over collusion by megabank traders to profit by falsely inflating and deflating the Libor interest rate,
- a federal bribery investigation over whether Wall Street megabanks have hired the children of powerful Chinese officials to help them win business in that nation, and
- a government case contending that Bank of America sold thousands of fraudulent and defective mortgages to Fannie Mae and Freddie Mac.
I could go on, but you get the picture. The question is whether Washington does too.
On the legal side, the answer appears to be a tentative “yes.” Attorney General Eric Holder this week told The Wall Street Journal that the Justice Department plans to announce new financial-crisis-related cases in the months ahead. This will be important to punish wrongdoing and maybe even deter fraudulent behavior going forward.
But we cannot get our arms around our problem—the systemically dangerous impact of too-big-to-fail—without congressional action. That is why ICBA continues to support the Terminating Bailouts for Taxpayer Fairness Act (S. 798), which would implement higher capital levels on the largest megabanks to limit the market distortions caused by their government guarantee against failure. It also would relieve community banks of several regulatory burdens to help them compete with their ever-consolidating competitors on Wall Street.
To make drastic change we need to take collective action. Do you want your voice to be heard? Community bankers, their customers and consumers nationwide can do their part by going to www.endtbtf.com and telling their members of Congress to act now.