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The largest and most powerful arm of the central bank of the U.S. has finally admitted the megabank emperors have no clothes. It is past time that we as a nation get to the bottom of this dangerous threat and fix it
April 3 -
Recently raised regulatory concerns about the massive transfer of mortgage servicing rights from banks to nonbanks are fueling industry hopes that policymakers may be open to addressing the issue.
May 21 -
U.S. banks today are safer, sounder, more secure, transparent, accountable and are performing their critical roles in the global economy.
April 16 -
The Independent Community Bankers of America is taking issue with Wall Street's opinion that banks need scale to survive. The group has urged members to tune out "defeatist talk" about smaller banks.
April 9
Anyone who remains unsure whether the largest and riskiest financial institutions still benefit from "too big to fail" policies should read the latest reportfrom the people who brought us the Basel capital rules.
In its new
Apparently, while capital is king under the Basel III regulatory regime, taxpayer funds will do in a pinch.
In the report, the Basel Committee says that using public funds to resolve weak banks may be considered in systemic situations, such as the disruption of credit and payment services to a large number of customers. But this provision appears to be at odds with the committees Basel III plan, which was designed to prevent systemic risks in the first place by ensuring adequate capital levels.
Moreover, in its rundown of the regulatory response to the financial crisis, the Basel Committee cites new resolution frameworks, stress testing and macroprudential oversight, but makes no mention of higher capital requirements. While the report suggests that loss of capital is a symptom of failing banks, it avoids emphasizing the need for the largest and riskiest institutions to hold higher levels of capital to ward off risk.
Finally, the committee says that the disbursement of public funds should depend on the megabanks implementation of an action plan, approved by supervisors, on how to restore profitability and good management. This seems a little optimistic. One would assume that a failing megabank already had a plan in place on how to be profitable, and it would certainly have no shortage of regulators poring over its books. If an action plan supervised by regulators gets a failing bank into a mess, Im not sure how it can be expected to get the institution out.
If the Basel Committee and financial regulators truly want to avoid the systemic risks and moral hazard that the largest financial firms pose to our economy, they should break up these institutions. Downsizing and restructuring the systemically dangerous megabanks would remove the specter of government-subsidized "too big to fail" advantages and help to restore free financial markets in the United States and across the globe.
Otherwise, if even our international capital rule-writers are acquiescing to the continued systemic risks of these highly complex institutions, it appears that "too big to fail" is here to stay.
Camden R. Fine is president and chief executive of the Independent Community Bankers of America.
