Fairytale Capitalism
After the 2020 Election: Break Up TBTF Banks
Congress dodged the issue of breaking up the biggest banks after the financial bubble’s final 2008 collapse. Protecting the essential roles of traditionally commercial banks — lending, deposit-taking, and operating the payments system — was prevented by politics. Proprietary trading and a few investment banking activities were circumscribed, and new TBTF derivatives clearing houses were…
Read MoreBREAK ‘EM UP: Ten Reasons to Isolate Taxpayers from TBTF Systemic Banks
Commercial banking and investment banking are fundamentally different businesses. Each may stand between those who have money to spare and those who need to borrow it, but their risks, time horizons, and compensation practices differ widely. As Glass-Steagall barriers between the two were dissolved beginning in 1987, the largest banks took higher risks, backed by…
Read MoreBREAK ‘EM UP!: Money in Politics Challenges the Real Solution to Systemic Risk
Getting Congress to force separation once again between commercial and investment banking may be politically challenging, even in an era of supposedly courting the middle class. But it is the only way to substantially minimize the need for future taxpayer bailouts of large banks. Employees and PACs of the largest banking, hedge fund, and private…
Read MoreBREAK ‘EM UP!: Creating Systemic TBTF Banks
Most folks outside the financial services industry (and many within) have the mistaken impression that the elimination of Glass-Steagall barriers between investment and commercial banking occurred in one legislative move. The true truth is that the barriers were first eroded by Federal Reserve actions, instigated by big U.S. commercial banks over a decade earlier than…
Read MoreBREAK ‘EM UP Reason #10: Only the Biggest Are Both Investment and Commercial Banks
Only the largest banks engage in both commercial and investment banking. Each business has its unique attributes and therefore regulatory challenges. Dodd-Frank categorizes banks with balance sheet assets of $50 billion and larger as systemic. But when one looks at the bank holding companies (BHCs) with $50 billion or more in assets and also looks at…
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