Pethokoukis

Will Paul Ryan endorse breaking up the megabanks?

Image Credit: Gage Skidmore (Flickr)

Image Credit: Gage Skidmore (Flickr)

The Republican Party’s 2012 vice presidential candidate:

Banks are getting really big, and they are using the value of their insured deposits to go do other things that are really not banking and jeopardizing the stability of the system. … Dodd-Frank goes in the wrong direction. It creates a permanent bailout fund. It deems very large, interconnected  banks as too big to fail, meaning the government will back them up if they go down. And that means these really large banks can go into the markets and get money at a much cheaper rate than your community bank. … I also believe in what we call the Volcker rule, which means if you’re going to act like a hedge fund then be a hedge fund. If you’re going to be a bank, then you have to be regulated like a bank. Meaning separate the ability of banks to take the implied subsidy of insured deposits and leverage that. I think that was one of the mistakes that was made.

Rep. Paul Ryan made those remarks (h/t to Think Progress) at two recent town hall meetings back in his Wisconsin district. Ryan also said he had some problems with the Brown-Vitter beak-up-the-megabanks legislation, “though the idea is one I find appealing.”

Stop the presses. If Ryan accepts the need to go beyond the Volcker Rule to somehow shrink or restructure the nation’s largest financial institutions, that would be a game-changing bit of political support for the idea. If there is a center-right permission structure for breaking up the biggest banks, Ryan would be a key component.

Once the premise is accepted, then it’s just a matter — though hardly a small one — of figuring out the best way of going about it: size caps, activity restrictions, dramatically higher capital. Now, I don’t know if Ryan is quite there yet, but we may find out when the Government Accountability Office releases its estimate of the TBTF subsidy currency enjoyed by the biggest financial institutions. If Ryan or any other Washington politician is looking for a jumping on point, that might be the moment.

5 thoughts on “Will Paul Ryan endorse breaking up the megabanks?

  1. This is really a confused position by Ryan, if that really is his position. It feels and sounds more like a developing position rather than a matured view. For example, he says that DFA goes in the wrong way, and then supports the Volcker Rule, a key element of DFA and its intrusion into the market place.

    I think that Ryan is a more careful thinker and supporter of market discipline, based upon other things he has said on other issues. The more he considers market discipline versus yet another round of major government intrusion in the market place, the more, I suspect and hope, he will see the follies of government-directed size control of the banking industry (or of any industry).

  2. Really, there’s no need to legislate a break-up of mega-banks. What’s needed is an end to the mercantilism – the so-called “crony capitalism” – that the democrats (and “moderate” republicans) have worked hand-in-hand with companies like GE and Goldman-Sachs to develop. Next time the banks look to fail, LET THEM. The whole economy will win as over-priced bubbles burst and those who have been priced out of those markets get back into them. The losers will hurt, but not for long, as the economic recovery will lift them back up as well. As long as the government makes “mega-banks” profitable by shoring up their weaknesses, it creates unfair advantage for them (as opposed to fair advantages which would be purely market-derived due to their size), and makes them top-heavy while draining resources from the economy via the special subsidies paid for by our taxes.

  3. Why not make the FDIC insurance premium charged for the bank deposits be proportional to the net risk imposed by a given bank on the financial system?

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