Big isn’t bad, banks tell Fed

[alp227]

Source: Reuters

The largest U.S. banks are accusing the Federal Reserve of attempting to misuse its new regulatory powers to shrink financial giants under the misguided belief that “big is bad.”

Lobbying groups representing the big banks are pushing back against a set of proposed rules that the Fed issued in December to more closely scrutinize the firms and rein in their risk-taking after the 2007-2009 financial crisis.

In a letter sent Friday, the groups said the Fed is going too far and is proposing a set of policies on credit exposure and capital standards that go against the intent of the 2010 Dodd-Frank financial oversight law.

“We submit that an approach grounded in a ‘too big’ or ‘big is bad’ concept is not only contrary to Congress’ intent but is misguided and detrimental to a sound, strong banking system and a strong economy,” the groups wrote.

Read more: http://www.reuters.com/article/2012/04/27/us-financial-regulation-fed-idUSBRE83Q19Q20120427

[Angry Dragon]

1. Spreading the money around to smaller regional banks

is a much more sound approach

[cstanleytech]

2. Agreed not to mention if one small regional bank goes under it is far less likely to have a large

impact overall compared to if a big one was to.

[freshwest]

3. Big in not always bad. Let's just say we don't approve of private monopolies blackmailing the govt.

Which is exactly what the crooked players have done, taking advantage of the government's responsibility to keep a reliable currency and cash flowing. They know, just like their GOP friends, that Democrats are the party of good government and are doing everything they can to undermine this country from the ground up.

[bemildred]

4. It is bad, it's very bad, and the evidence is clear as an be. nt

[saras]

5. Can anyone show any real way in which big is NOT bad?

Given that financial "efficiency" has no demonstrated relationship to human well-being, arguments of increased efficiency are simply irrelevant. What benefits does bigness of institutions offer the individuals served by them?

[jwirr]

6. But "Small is Beautiful". Read the book in the 70s and still have it in my library.

[Jack Rabbit]

7. Yes, it is

Too-big-to-fail banks have no incentive to avoid losses incurred through taking unreasonable risks. They take the risk, lose a barrel full of money and then cry to congress, which in joins them in robbing the taxpayers at gunpoint. This is not a sustainable business model.

Big is bad. It's also unmanageable and inefficient. Let Goldman Sachs and J. P. Morgan go under. If Mr. Blankfein and Mr. Dimon are concerned about their future, we can arrange for them to retire to some very safe and secure government housing. That would be a better use of the taxpayers' money than bailing out too-big-to-fail banks over and over again.

[jmowreader]

9. The problem isn't their lack of incentive

The problem is the ability of a bank to take unreasonable risks, specifically in securities.

I know, I know..."But look at the S&L crisis!" The problem is, Ronald Reagan and his damn loophole-closing tax hikes caused the S&L crisis. The S&Ls were the go-to lenders for commercial rental property. Now, what one must realize about commercial rental property is, it doesn't make money. Commercial rental works as an industry because the IRS allows you to deduct passive losses--losses on businesses where the owner doesn't have to take an "active" role. (Consider a sandwich shop in a rented storefront. The guy who owns the business has to slice meat and stack sandwiches. That's "active" participation. The guy who owns the building it's in sits at his desk and accepts rent payments. That's "passive" participation.) By deducting passive loss from your taxes, you can at least break even in that industry. Reagan eliminated the passive loss deduction and, within two years of its elimination, 747 savings & loan banks failed.

Seriously, folks, banks screwing around in the securities business and failing caused every major depression and "panic" we've ever had.

[jmowreader]

8. They're right. Big isn't bad.

Allowing banks to sell stocks, bonds and insurance is bad. Every time we've let them, they managed to crash the economy.

I will be perfectly happy with allowing banks to get as large as they want just so long as they are permanently banned from selling securities and insurance--in short, reinstating the Glass-Steagall Act in all its glory.