Break Up The Banks?
Again, I know, I’m getting into the economy which is not, necessarily, media focused but it affects us all so here’s a thought.
Why aren’t we talking about trying to break up the big banks?
I know they don’t necessarily violate anti-trust regulations like the old Ma’ Bell but wouldn’t our economy be much stronger in the long run with a more distributed financial system? There has been a much discussion of late about moving to a distributed power system where many, many micro-generation points is more efficient and more secure than having a single massive power plant which is potentially catastrophic if it were to fail. Doing the same with our financial system is not unreasonable. It seems like a bad idea to get through this crises only to allow the economy to be in hock to a small group of banks that are too-big-to-fail all over again. Is one monolithian Citigroup better than 20 Baby-Citi’s? It strikes me as no…
Since we regulate the banks so heavily would it be totally unreasonable to cap a bank’s assets at no more than 2.5% of GDP? If I am correct, Citi’s assets are something like $2.2T which is north of 15% of US GDP. We can’t make pragmatic decisions about which banks should be killed off when they have us by the throat. A recent complaint is that if a bank went into receivership there would be no other bank big enough to absorb it. However if we had 10 smaller banks then the Fed and Treasury could temporarily wave the rules to allow a few banks to collectively absorb a failing bank.