Never too big to fail
From the New York Times:
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The White House’s proposal to overhaul financial regulation has ideas for banks that are too big to fail. The House passed a bill last week that would require big banks to have bigger capital cushions to absorb losses. . . These provisions still seem vulnerable to being gamed. The Senate, which is unlikely to pass its version of the deal until next year, should explore more direct measures, like banning banks beyond a certain size, measured by their liabilities. [AO: America has a problem with banks that are too big to fail. We cannot afford them. On the other hand, there are benefits to large banks. These benefits have been enumerated elsewhere. Yet, we cannot allow pursuit of these benefits to blind us to the significant systemic problem that big failing banks can cause. The solution, however, is not hard limits like banning banks larger than a certain size. What we need is a system that allows banks of any size, provided they are not too big to fail. For example, a bank twice the size of our biggest current too-big-to-fail bank may not be too big to fail if it has sufficient reserves to prevent catastrophic results when it fails. That is to say, rather than limiting the size of banks, Congress may pass legislation such as capital reserve requirements tailored to the size of banks so that they are never too big to fail.] |
If the goal is to reduce the number of huge banks that taxpayers must rescue at any cost, the nation is moving in the wrong direction. The growth of the biggest banks ensures that the next bailout will have to be even bigger. These banks will be more likely to take on excessiveRead the full opinion HERE.
