Fed Governor Proposes Reorganizing Banks Deemed "Too Big to Fail"

[pmbug]

...
"We recommend that TBTF (too-big-to-fail) financial institutions be restructured into multiple business entities," Richard Fisher, president of the Dallas Federal Reserve Bank, told an audience at the National Press Club in Washington.

Critics say Dodd-Frank did not go far enough, including several Fed officials who, like Fisher, want the biggest banks reined in.
...
He identified 12 "megabanks" with assets of over $250 billion as too big to fail.

"Only the resulting downsized commercial banking operations, and not shadow banking affiliates or the parent company, would benefit from the safety net of federal deposit insurance and access to the Federal Reserve's discount window," Fisher said.

The 12 "megabanks" Fisher identified together account for 69 percent of all U.S. banking assets, but represent only 0.2 percent of the country's 5,600 banks.

"The 12 institutions ... are candidates to be considered TBTF because of the threat they could pose to the financial system and the economy should one or more of them get into trouble," he said.

He did not name them all, but showed a slide displaying the names of five top U.S. banks: JPMorgan Chase , Bank of America , Goldman Sachs , Citigroup and Morgan Stanley .

Fisher said he had received support from lawmakers on both sides of the aisle for his views, which the Dallas Fed has been pressing for over a year, and had even heard from famed dealmaker Sandy Weill, who said he agreed with Fisher.

http://globaleconomicanalysis.blogspot.com/2013/01/fed-governor-proposes-reorganizing.html

 

[benjamen]

I wanted to see what banks they are talking about..
http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspx

JPMORGAN CHASE & CO. $2,321,284,000
BANK OF AMERICA CORPORATION $2,168,023,105
CITIGROUP INC. $1,931,346,000
WELLS FARGO & COMPANY $1,374,715,000
GOLDMAN SACHS GROUP, INC. $949,475,000
METLIFE, INC. $846,285,485
MORGAN STANLEY $764,985,000
U.S. BANCORP $352,253,000
BANK OF NEW YORK MELLON CORPORATION $340,102,000
HSBC NORTH AMERICA HOLDINGS INC. $320,833,451
CAPITAL ONE FINANCIAL CORPORATION $302,114,103
PNC FINANCIAL SERVICES GROUP, INC. $301,077,311


Most people in the banking system are saying a bank has to have 100 billion in assets to be large enough to absorb the costs of regulation in the U.S. This is only the top 26 banks. Expect the rate of mergers of the smaller fish to increase. Since you are excempt from most of the regulation if you have less than 10 billion in assets, we should soon see very, very few bank in the 10-100 billion in assets range. If this guy gets his way and limits banks to 250 billion or less, then should see a U.S. banking system where all the larger banks are forced into the 100-250 billion range.
$.02

 

[ancona]

All they truly have to do is to reinstate Glass Steagal with no new codicils or changes. If they leave it exactly as written originally, then enforce it with the full weight of already existing law, we will have separated banks from investment houses and hedge funds. Then, limit leverage to no more than 10 to 1.

Will it happen? Not a fucking chance.

 

[benjamen]

All they truly have to do is to reinstate Glass Steagal with no new codicils or changes. If they leave it exactly as written originally, then enforce it with the full weight of already existing law, we will have separated banks from investment houses and hedge funds. Then, limit leverage to no more than 10 to 1.

Will it happen? Not a fucking chance.

A big part of the great depression and the most recent economic distress in this country is due to some banks doing foolish things. Since most people do not pay attention to the financial stability of their bank, many people were put at risk when the poor decisions of their bank put their deposits at risk. The public pleads with the government to "Do Something". Instead of letting basic economics punish banks that take foolish risks and people who entrust their money to poorly run banks, the government bails out the foolish banks and makes the taxpayers and better run banks pay for it. This actually reduces the incentive to be a conservative, well run bank and encourages the industry to take more risk and form ever larger banks to absorb the regulatory costs.

In this age of global competition and international banks, forcing U.S. banks to follow a Glass-Steagal framework would put them at a major disadvantage to the large non-U.S. banks who do not have such a restriction.

$.02

 

[DCFusor]

Yes, until we can get together on world wide regs, nothing will do much good. I seem to recall that all the TBTF US banks (and many others) have a London office so they can do things that aren't legal here - but are there, for just one example.

Making things like the double dutch sandwich illegal worldwide would be even cooler, but also a snowflake's chance in hell.

We mustn't forget who is really running the show, and it ain't the governments or regulators. If they gave a fart in the wind about us - or anything but the big banks, all that bailout money would have made every man, woman, and child in the US rich all by itself and totally stimulated the economy in a real way. As it is....not so great. I don't believe that's due to them being dumb, I believe it's deliberate.

 

[pmbug]

Amid calls for stricter regulations of the banking industry, JP Morgan CEO Jamie Dimon came under fire Wednesday after telling corporate and political leaders at the World Economic Forum that banks had been wrongly "scapegoated" as the cause of the global economic crisis, and resisted calls for increased regulation of the financial industry.

Dimon's remarks on Wednesday—the first day of the WEF in Davos, Switzerland—came in response to comments by Min Zhu, deputy managing director of the IMF, who argued that the financial sector is too big and greater regulations—including of the "shadow banking" sector—are critical, The Guardian reports.

Sam Mamudi at Barrons writes, "This line of reasoning echoes that of Goldman Sachs CEO Lloyd Blankfein when he told the Times of London newspaper in late 2009 that his bank was 'doing God’s work.' It’s also nonsense, and it shows just how deeply inside their own bubble many bankers live these days."
...

More: http://www.commondreams.org/headline/2013/01/23-6

 

[bushi]

(...) the government bails out the foolish banks and makes the taxpayers and better run banks pay for it. This actually reduces the incentive to be a conservative, well run bank(...)

It is much worse, than just removing the incentive - it makes conservative banks incompetitive. Think about that: when the going is good, excessive risk-takers make shitload of money (the whole risk-reward thing - more risky it is, more money can be made). Therefore, it puts market pressures on the more conservative banks - press hates them, shares are going down, customers go, where more money is being (apparently) made. Then, when the shit hits the fan, there's no lessons are learned, no takeovers of incompetent banks' assets, by competent ones, paying pennies on the dollar for them - no, there's just bailout - and incompetent executives are still ru(i)nning the show. Totally agree with the rest of your posting.

I seem to recall that all the TBTF US banks (and many others) have a London office so they can do things that aren't legal here - but are there, for just one example.

That's correct, DCFusor, I can't give the details from my memory, but there were numerous examples of that (including JPMorgan's London Whale "rogue" trader(s), and at least some of MF Global shenanigans). Max Keiser is all over this, every now and again he gives examples, how London is the epicenter of global financial fraud.

But in fact, with regards to international banking regultaions - it is pretty much the same as with US only - if some country wants to be "competitive" and overly "creative" with financial services - I say fine, let them have it all - just when the judgement day comes, give them razor to cut their own throats, instead of bailouts.

Re: bailouts for people, instead of banks: I was considering that, and I cannot see any fault in that logic. I think it is way to go. One caveat - it HAS to be EQUAL AMOUNT to ALL citizens (no fucking "means testing" or other bullshit favoritism), and if you are in debt - you are REQUIRED to spend it on your debt FIRST.

That would do the trick - at the end of the day, money would recapitalize the banks, but with the benefit of debt reductions across the board. IF you were stupid, reckless - at least, you would be in smaller shit after wards. If you were smart/prudent - you would enjoy a nice surplus, to do what you please.

Even if it creates some inflation (which it doesn't necessarily, as we can see from QEs) - it doesn't matter, because, it would be a FAIR inflation, and EVERYONE would participate in spending money that could possibly create it (since EVERYONE would have access to these stimulus dollars, and could spend them as they find appropriate (=personal responsibility, fairness and equal treatment from the state)). As it is, QE only benefits the biggest, most corrupted, and mostly responsible for the current mess.

 

[ancona]

DC,
The London thing exists because regulations there allow bankers to do things that are far riskier than they are in the US. Re-hypothecation is just one of them. In London, an asset can be pledged more than once to attain financing [read: cash money] to increase either cash basis or other funding pools. In addition, these assets need only be in their "custody", not their posessions. So, money that you think your broker is safeguarding in some conservative London managed fund, may be proomised as collateral elsewhere against a loan.

 

[mmerlinn]

We recommend that TBTF (too-big-to-fail) financial institutions be restructured into multiple business entities," Richard Fisher, president of the Dallas Federal Reserve Bank, told an audience at the National Press Club in Washington.

Until a few years ago, TBTF banks could not exist in America as banks could not bank across state lines. Once they dropped that rule, banks went on a consolidation spree resulting in the mess we have now. Bank holding companies often contained banks from many states, but each bank was a separate entity with no direct connection to the others for any banking business thereby spreading the risk over many different unaffiliated systems.

Yes, it is convenient for me to bank at a bank that has branches in 46 of the lower 48 (all but OK and TX), but that convenience comes at a price of TBTF when the bank gets greedy, gets mismanaged, or plain has bad luck.

I don't know if returning to that scenario is better or whether it is better to allow the regulators to meddle in the affairs of the large banks. I tend to think diversity is the better answer rather than having one regulator who can make or break the banking system of the U.S.

 

[benjamen]

DC,
The London thing exists because regulations there allow bankers to do things that are far riskier than they are in the US. Re-hypothecation is just one of them. In London, an asset can be pledged more than once to attain financing [read: cash money] to increase either cash basis or other funding pools. In addition, these assets need only be in their "custody", not their posessions. So, money that you think your broker is safeguarding in some conservative London managed fund, may be proomised as collateral elsewhere against a loan.

http://news.yahoo.com/bank-america-begins-moving-50-billion-derivatives-uk-003239943--sector.html

Speaking of London, Bank of Amercia is moving 50 Billion dollars worth of derivatives there...

 

[pmbug]

Richard Fisher, President and CEO of the Federal Reserve Bank of Dallas, presented trenchant, and important, remarks before Columbia University's School of International and Public Affairs on February 27, 2013.
...

...
I have argued against what I have called “Buzz Lightyear” monetary policy—pledging to hold the federal funds rate at zero seemingly to infinity and beyond, while purchasing longer-term Treasury securities at a pace of $45 billion per month, reinvesting principal payments on all agency debt and agency mortgage-backed securities (MBS) and purchasing MBS at a pace of $40 billion per month.5 Indeed, other than our initial program to underpin a recovery in the housing market with our initial tranche of purchases of MBS, I have opposed all other large-scale asset purchases or quantitative easing (QE) programs. Why have I been so obstinate in my opposition to this well-intended program?
...

...

More: http://www.thegoldstandardnow.org/k...sher-qdont-be-a-schmuckq#.UUpjQQ142j0.twitter

 

[swissaustrian]

He just plays the role of controlled opposition:
http://www.lewrockwell.com/north/north932.html

 

[pmbug]

... when Santelli asks him about the Fed's exit that things get a little uncomfortable, "no central bank anywhere on the planet has the experience of successfully navigating a return home from the place in which we now find ourselves." When pressed he exposes the flaw (much to the chagrin of Kuroda and Bernanke we suspect), "somewhere we have to have practical limits as to where we can build the balance sheet. We're moving in the direction of a $4 trillion balance sheet. We know we can't go on forever."
...

http://www.zerohedge.com/news/2013-05-08/feds-fisher-santelli-cant-go-forever

:rotflmbo:

 

[MiningNut]

How and why does a bank become TBTF? By serving the role of government debt warehouses, the TBTF banks become bloated and cancerous with fiat debt; because the government needs them more than they need the government, they become corrupt.

So the government uses the TBTF banks to hold their debt and sustain their fiat ponzi scheme, but we are all supposed to just mindlessly hate the banks without asking "Qui bono?" Every time you whine about the "evil bankers", you are giving the government a free pass and ignoring the law of causality.

 

[Aubuy]

Last time I was in a big bank branch office I couldn't get much done and the youngsters working there had to keep calling their bosses in New York to get advice and directions and it started to occur to me that these banks would really rather not be bothered with customers.

 

[pmbug]

Fisher still pushing his agenda:

...
Four experts recently faced off on this question in an Oxford-style debate for the Intelligence Squared U.S. series. They argued two against two on the motion, "Break Up The Big Banks."

Before the debate, the audience at New York City's Kaufman Center voted 37 percent in favor of the motion and 19 percent against. Forty-four percent were undecided. After the debate, 49 percent supported breaking up big banks — an increase of 12 percentage points — and 39 percent opposed — an increase of 20 points. That made the side arguing against breaking up the banks the winners of the debate.

Those debating:

FOR THE MOTION

Richard W. Fisher is the president and CEO of the Federal Reserve Bank of Dallas. ...

More (incl. MP3 audio stream): http://www.npr.org/2013/10/17/236380703/debate-should-the-u-s-break-up-big-banks

 

[Aubuy]

I remember when you opened a savings account at your local S&L they would give you a little deposit booklet where they would stamp the amount every time you put money in, and you would be guaranteed a 5% return. I miss those days. :sad$: