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Dodd-Frank went a long way toward ending too-big-to-fail. Since large, diversified financial institutions provide significant economic value to clients, the likely effect of arbitrary and preemptive break-ups would be to concede global financial leadership to other jurisdictions.
April 30 -
Three things are driving the growth of large banks: market demand, access to capital and regulatory burden created by existing and forthcoming legislation.
March 18 -
It is precisely because we do not know whether the government would opt for a bailout the next time there is a banking crisis that regulators must continue to confront the significant challenges posed by U.S. banks, writes Mayra Rodríguez Valladares.
August 1 -
According to American folklore, the famously long-legged Abraham Lincoln was once asked: "Abe, how long should a man's legs be?" Lincoln is reported to have answered: "Long enough to reach the ground."
April 17
To see why it's absurd for Washington to be debating how big the country's banks should be, imagine the following scenario:
You leave your hometown after high school to study and later work abroad for several years. After some time, you decide it's time to come home, at which point you reacquaint yourself with your high school prom date, who never left. You decide to get married. After the honeymoon, it's time to pay the bills, which means you have to choose how to bank. Your spouse has banked for years at a local small bank because of the personalized service it offers. It has only a few branches. But having moved around, you think fondly about all those times you found a bank branch during your travels and you appreciate that you didn't have to close your account just because you moved to a different part of the state, let alone an entirely different state, or even abroad.
What's the right way to go? That's for you and your spouse to decide. The decision should not involve politicians and regulators.
Small banks may make more sense for people who seldom travel or relocate, or who use a limited range of services. Big banks may be preferable for people who move around more often or use a wider range of services even with the advent of automated teller machines and telephone, online and now mobile banking. The best way forward is to let people vote with their feet, allowing banks to compete to offer the best service.
That this debate arises in the political realm reflects what has always been wrong with the U.S. approach to banking politics and regulations, ever since Thomas Jefferson as an anti-Federalist defending agrarian interests challenged Alexander Hamilton's Federalist vision of an urbanized America with bank-financed industrialization. Author Ron Chernow makes that point in his fabulous Hamilton
Professors Charles Calomiris and Stephen Haber at Columbia and Stanford respectively, in their recent book "
To be fair to the politicians and regulators involved in designing and implementing Dodd Frank, the issue of bank size ties in closely to the complexity of a bank's activities, because some complex activities
Interest in such activities reflects the fact that as accounting rules, banking regulations and tax laws become more complicated, so have the ways of getting around the rules. But complexity and bank size are two separate issues. This is why some regional banks, like PNC, can credibly challenge the "systemically important financial institution" or "SIFI" designation, on the grounds that they were not involved in the recent crisis.
To address complexity, how about simplifying banking regulations by simply raising capital requirements even more, as many advocate in various forms? Likewise, to address size, how about letting customers decide how big their banks should be?
Many U.S. politicians, regulators, populists and small bankers want to convince us we should fear big banks. After four years, it seems the bigger concern lies with the regulatory burden made worse by Dodd Frank. That's because to the extent that it greatly increases the cost of banking those costs will be passed on to the customers in the form of fewer services, fewer branches, higher fees, and overall, even more customer dissatisfaction.