Newspaper article The Christian Science Monitor

Banks Too Big to Fail? Break 'Em Up, Congress

Newspaper article The Christian Science Monitor

Banks Too Big to Fail? Break 'Em Up, Congress

Article excerpt

Congress shouldn't let financial institutions get large enough to wreck the financial system. But questions abound about whether the Feds can be honest regulators.

If a financial company is deemed "too big to fail," the remedy seems simple: Break it up. Make the bank small enough that even if casino-type investments lead to crisis, it will not threaten the entire financial system. And don't let any financial giant super- size in the future. Financial reformers in Congress talk about avoiding using more taxpayer money for future bank rescues. So far, though, neither the House nor the Senate reform bills propose radical steps to make giant banks immediately smaller. "Congress is spending more time over organizational boxes - whether the Fed [Federal Reserve] or a 'council of regulators' or some other entity will oversee the financial system looking for systemic risk - than getting to the root remedies," notes Robert Reich, an economist at the University of California, Berkeley, and former secretary of Labor. He proposes: 1. Resurrecting the Glass-Steagall Act, the Depression-era law prohibiting commercial bank-holding companies from owning investment banking firms or other more risky financial companies. It was repealed in 1999. 2. Applying antitrust laws to break up "the biggest banks that have undue market power." The strongest measure before Congress, proposed by Rep. Paul Kanjorski (D) of Pennsylvania, would empower a new Financial Services Oversight Council "to rein in and dismantle financial firms that are so large, inter-connected, or risky that their collapse would put at risk the entire American economic system, even if those firms currently appear to be well-capitalized and healthy," states the congressman's press release. This measure passed the House Financial Services Committee Nov. 18 as an amendment to the Financial Stability Improvement Act, the bill negotiated by committee chairman Barney Frank. …

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