It’s the issue that won’t go away. Even though Washington has created a new financial regulatory regime, there are still calls to shrink or break up America’s biggest financial institutions:
The biggest five banks in the United States are too powerful and should be broken up, Dallas Fed President Richard Fisher said on Wednesday. The financial crisis has left the five biggest banks even more powerful than before, he told an event in Mexico City. “After the crisis, the five largest banks had a higher concentration of deposits than they did before the crisis,” he said. “I am of the belief personally that the power of the five largest banks is too concentrated. The purpose of Dodd-Frank was to reduce the concentration of power and we have a term called ‘too big to fail’ … perversely, these banks are now even bigger, they are too ‘bigger’ to fail than before.”
And in a research note today, superstar banking analyst Jaret Seiberg of Guggenheim Washington Research Group said the issue may actually be gaining momentum:
Federal Reserve Bank of Dallas president Richard Fisher garnered headlines last week when he called for breaking up the biggest banks. Were he the only voice calling for splitting up the banks, then this would be a nonevent. … This is not a threat that should be ignored. The far left and far right are united in calling for breaking up the biggest banks. That is why the increasing polarization of Congress is a negative for the mega banks as it is only the political center that tolerates the status quo.
Mitt Romney has taken several populist policy positions that conservatives hate but work to counterbalance the plutocrat, Gordon Gekko caricature his opponents—both Republican and Democrat—try to promote. He is for cutting capital gains taxes—but only for middle incomers. He is for indexing the minimum wage to inflation. He is for labeling China a currency manipulator and slapping a tariff on its goods.
Message: This is one multimillionaire, corporate turnaround artist who cares about the average American.
But if Romney is looking for a big idea with populist oomph—one that might actually make some economic sense—he should call for breaking up America’s biggest banks. It seems like a perfect “Nixon goes to China” sort of play for the former banker … I mean, private equity investor … I mean, venture capitalist … I mean, conservative businessman. It’s actually kind of surprising Romney hasn’t already made busting up the mega-banks the 60th idea of his 59-point economic plan.
1. It would attack a glaring Obama vulnerability. Back in 2010, President Obama said the Dodd-Frank financial reform law “would put an end—once and for all—to taxpayer bailouts.” Yet the biggest banks are bigger than ever, with assets worth over 66 percent of GDP. And their funding advantage over smaller banks is a sign that markets think they are still Too Big To Fail. It was the financial crisis that caused the Great Recession—and swept Obama into office with a near-landslide victory. Yet the unholy, crony-capitalist alliance between Big Government and Big Money that helped create the crisis still seems intact.
2. Banks and the bank bailout remain tremendously unpopular. In an October CNN poll, 76 percent said they trust banks “a little” (22 percent) or “not at all” (54 percent). Massive majorities said bankers were “greedy,” “overpaid,” and “dishonest.” In an August CNN/Gallup poll, 61 percent were for more bank regulation and against financial aid to troubled banks. In a July Bloomberg poll, respondents by a 58 to 28 percent majority said TARP was “unneeded.”
3. It’s not just an Occupy thing. Many conservatives kind of like the idea, too. Among the members of the right-of-center, let’s-think-about-breaking-up-the-big-banks crowd: Bill Kristol, Charlie Gasparino, Alan Greenspan, Arnold Kling, and Luigi Zingales. Their arguments can be summed up thusly:
– Big banks are the result of de facto industrial policy favoring mega-institutions.
– Big banks have not made the financial system more robust.
– Big Banks have so much concentrated economy power that it is impossible to either regulate them or prevent future bailouts. (Again, the crony capitalism argument.) Thus we have privatized bank profits and transferred the risk to taxpayers.
Currently, there are 10 percent caps on the total share of domestic deposits and financial assets that any single bank can have. Seiberg says JP Morgan, Wells Fargo, and Bank of America are all near the caps. Romney could simply call for those caps to be lowered to 5 percent or less, thus forcing those banks to divest assets and shrink.
Still, if Romney is looking for game changer, this could be it.