Breaking Up Behemoth Banks

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6 Responses

  1. Frank Pasquale says:

    Brilliant, important points. Thank you so much for breaking it down so persuasively and eloquently.

  2. Ken says:

    We discovered during the Pecora hearings that the malignancy in banking that brought the economy crashing down was caused by retail/commerical banks combining with investment banks, brokers, and speculators. We passed a simple law, Glass-Steagall, to prevent that. For the next half-century our banking system was boring, but healthy.

    Then, in our infinite naivete/gullibility, we let the speculators convince us (not me, but the royal “us”) that the best regulation was the implicit regulation of the unfettered marketplace, where weak players and bad ideas would naturally fail, while good ideas and strong players would succeed.

    Sadly, this was a case of total amnesia. We totally forgot that the worst combination was strong players with bad ideas.

    What is surprising to me is that we still have that selective amnesia. We bandy about terms like “regulation” while most of our legislators probably STILL haven’t heard of Pecora, let alone read the details of what he uncovered, and how successfully we avoided the repetition for a half century.

    The idea of “breaking up” the huge banks dovetails nicely with the idea of forcing banks back into the banking business, to the exclusion of insurance, brokerage, and speculation. If we break up the “financial one-stops” and separate their functional components, I suspect we will find we’ve simultaneously gone a long way to leveling the sizes, too.

  3. zephyr teachout says:

    Great post, and well put. More controversial than radical is exactly right.

    Although its true that its a long shot, the numbers aren’t as skewed as you might think, with the New York Times editorial page weighing in in favor of breaking up the banks this morning. As Simon Johnson and Robert Reich have pointed out, there is zero evidence that banks larger than $100 billion in assets are more useful by any metric.

  4. Yet another interesting piece by Hiltzik in today’s Times: “Bankers trot out tired, old arguments against financial overhaul”—,0,1276219,full.column

  5. Completely random comment — would Chemical Bank be revived as a name? The Chemical name didn’t survive the merger with Texas Commerce Bank, which preceded the merger with Chase Manhattan, which preceded the merger with J.P. Morgan. Though Chemical was bigger, no one liked the name Chemical very much, so kept Texas Commerce Bank (TCB). Sorry, former client, can’t help myself.

  6. Ken says:

    Christine, Thomas Wolfe said it (posthumously) 70 years ago. And the older I get, the more often it seems to come up.

    I too had a former client (software, not legal) that got lost in the mergermania. Virginia National Bank (VNB) was one of the best run, and most successful, of the regional banks. VNB acquired some banks in various south-Atlantic states and decided to lose their “local bank” identity by changing their name to Sovran Bank. Then North Carolina National Bank (another of the best run, and most successful) merged with Sovran. Once again, intending to amplify their image, they became NationsBank. They were still among the best run and most successful.

    Alas, “best run and most successful” became just a fond memory when NationsBank merged with Bank of America. Although Nations was the “senior” partner in the merger, they decided to keep the Bank of America name because of its international presence. Sadly, we soon found out that “international presence” meant a lot of bad South American loans, and the downhill slide began.