George Will: Time to break up the banks
In a sense, TBTF began under Ronald Reagan with the 1984 rescue of Continental Illinois, then the seventh-largest bank. In 2011, the four biggest U.S. banks (JPMorgan Chase, Bank of America, Citigroup and Wells Fargo) had 40 percent of all federally insured deposits. Today, the 5,500 community banks have 12 percent of the banking industry’s assets. The 12 banks with $250 billion to $2.3 trillion in assets total 69 percent. The 20 largest banks’ assets total 84.5 percent of the nation’s gross domestic product.
Such banks have become bigger, relative to the economy, since the financial crisis began, and they are not the only economic entities to do so. Last year, the Economist reported that in the past 15 years the combined assets of the 50 largest U.S. companies had risen from around 70 percent of GDP to around 130 percent. And banks are not the only entities designated TBTF because they are “systemically important.” General Motors supposedly required a bailout because a chain of parts suppliers might have failed with it.
... To see why TBTF also can mean TBTM — too big to manage — read “What’s Inside America’s Banks?” in the January/February issue of the Atlantic. Frank Partnoy and Jesse Eisinger argue that banks are not only bigger but also “more opaque than ever.” And regulations partake of the opacity: The landmark Glass-Steagall Act of 1933, separating commercial banking from investment banking, was 37 pages long; the 848 pages of the 2010 Dodd-Frank law may eventually be supplemented by 30 times that many pages of rules. The “Volcker rule” banning banks from speculating with federally insured deposits is 298 pages long. There is no convincing consensus about a correlation between a bank’s size and supposed efficiencies of scale, and any efficiencies must be weighed against management inefficiencies associated with complexity and opacity.
... By breaking up the biggest banks, conservatives will not be putting asunder what the free market has joined together. Government nurtured these behemoths by weaving an improvident safety net and by practicing crony capitalism. Dismantling them would be a blow against government that has become too big not to fail. Aux barricades!Comment: Image source. My view:
- You can't call Big Banks a Monopoly (because there are more than 1)
- You can't call even them an Oligopoly because there are so many choices (consider for example Texas's Frost Bank) (I'm not sure about Citibank but the other big guys compete in Texas).
- So I still think, from the consumers' viewpoint, it is about choice and convenience.
- And there are efficiences that come from size. Two come to mind: BCP (Business Continuity Planning). The financial institution for whom I work has some really impressive failover capacities that, for example, Hibernia bank did not have in Katrina (two data centers under water .. no geographical separation of BCP data centers!). The second efficiency example would be spreading the cost of federal regulations.
- And then there are consumer benefits. Of course not every consumer will weigh these the same. That's the great thing about a free-market economy is that consumers can choose. From my own personal viewpoint I appreciate Wells Fargo for these services:
- Instant transfer of monies between brokerage and banking. I have a family member who has an account with Frost and her brokerage account is with Edward Jones. She has a 3 day wait on transfers.
- Instant transfer from checking to credit card. When I pay my Chase bill from Wells Fargo that transaction takes several days
- One look: Checking, Investing, Credit Card, HELOC, Mortgage (although we no longer have a mortgage), Auto loan (ditto)
- Widespread choices at "a store". Need a mortgage? Walk into any Wells Fargo branch!
- Large footprint: In Texas, the East Coast, the West Coast, Arizona, Florida? Bank at Wells Fargo? Well one can find a branch
By the way, there is no coercion to solely shop at Wells Fargo. I have a Capital One 360 account for some services. I have a Chase credit card. While I can buy auto insurance from Wells Fargo, my auto insurance is with Allstate. I could buy life insurance from Wells Fargo but never did. When I've had auto loans, I've gone for the best rates. My most recent auto loan was with the Postal Credit Union in Saint Paul. Our mortgage? Was with US Bank. Conclusion: I don't share Will's Aux barricades (in essence - break up the banks) view. Image source (below):