BREAK ‘EM UP!: Creating Systemic TBTF Banks

By Emily Eisenlohr | June 12, 2017

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…

BREAK ‘EM UP Reason #10: Only the Biggest Are Both Investment and Commercial Banks

By Emily Eisenlohr | June 12, 2017

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…

BREAK ‘EM UP Reason #9: Only TBTF Banks Sold Securitized Residential Mortgages

By Emily Eisenlohr | June 12, 2017

Not all large banks designated as “systemic” by Dodd-Frank expose taxpayers to investment banking’s trading risks. Only the largest are the ones packaging and trading derivatives and were “securitizing” and selling residential mortgage-backed securities. Securities trading, historically of bonds and equities, has always been an investment banking strength. However, financial engineering created new, more opaque…

BREAK ‘EM UP Reason #8: Credit Default Swaps Are Insurance Masquerading as Derivatives

By Emily Eisenlohr | June 12, 2017

No product that was financially-engineered during the growth of the Great Bubble is as destructive as credit default swaps (CDSs). They are more insurance than derivatives. Only the largest banks trade them. Only a rather small percentage are cleared on central counterparty clearing platforms, despite Dodd-Frank. The International Monetary Fund (IMF) and many in the…

BREAK ‘EM UP Reason #7: Regulators Cannot “Ring-Fence” Risk Out of TBTF Banks

By Emily Eisenlohr | June 12, 2017

Ring-fencing of risks may be a useful tool for financial sector regulators, but it isn’t a solution to systemic risk. In a systemic event, one cannot fence in trust and fence out fear.


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