Is it time to break up the banks?

Last week the Dallas Fed issued an explosive report (PDF) -- predicting America will face another financial crisis and be forced to bail out Wall Street again unless the biggest banks are broken up.

This isn't the Occupy movement. The Dallas Fed is one of the most conservative banks in the Federal Reserve system. And it knows first-hand about the dangers of under-regulated banks -- the Savings and Loan crisis of the 1980s and '90s affected Texas like nowhere else.

According to The Dallas Fed report, Wall Street's power makes it almost impossible to control because "they have the lawyers and the money to resist the pressures of federal regulation." This means the Dodd-Frank act, which is supposed to prevent another financial calamity, is woefully inadequate.

Wall Street seems intent on proving the Dallas Fed correct. At this very moment its legion of lobbyists is pushing legislation in Congress to weaken provisions in the Dodd-Frank law regulating the trading of derivatives.

Meanwhile, the same lobbyists are swarming over the regulatory agencies charged with implementing Dodd-Frank. They've been trying to weaken other provisions, like the so-called Volcker Rule that bars banks from gambling with commercial deposits. The Volcker Rule is now riddled with loopholes large enough for the bankers to drive their Ferraris through.

Where they haven't yet eviscerated Dodd-Frank, Wall Street's lawyers have been going to court to stop it. Recently, they delayed a rule by the Commodity Futures Trading Commission to limit speculation in commodities such as oil.

Clearly Wall Street hasn't learned its lesson. The public will not tolerate another financial meltdown and bailout, and yet Wall Street won't accept more regulation. If it's too big to fail and too powerful to regulate, the only answer is, according to the Dallas Fed "breaking up the nation's biggest banks into smaller units."

We did it to the giant oil companies a century ago because they were too powerful, economically and politically. It's time to apply the same medicine to Wall Street.

About the author

Robert Reich is chancellor's professor of public policy at the University of California, Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.
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Yes, but . . . as with AT & T, they'll just find a way around it. Maybe it's time for a "public option" in banking, as well as telecommunications, transportation, energy (competition for Exxonmobil, etc.), and health care. Of course, reinstating Glass-Steagall would be the first step.

I don't think that the banks are too big. The problem is that they're too interconnected. Even if all of the banks were smaller, if they keep as integrated as they are, the failure of one will be the failure of all of them.

This idea is worth considering. However, easier said than done. Perhaps Bob will offer some general principles that might be applied to this. And, just as importantly, define how to draw the line that identifies "too big".

Only the voters can keep the gluttons from destroying themselves and bringing down the whole system.

The most sensible idea that I have heard lately. Yes, the banks are way too big and too powerful. Break them up. It's about time!

At what point, does "Too Big to Fail" not also, equate to....a "Monopoly"? Some may recall, that AT&T was broken up, because they had too much control over the telecoms market, then why are the very large banks that were already slated as "too big to fail" then, allowed / permitted, to become even larger, by merging / take-overs?
"...Monopolies are thus characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods.[2] The verb "monopolize" refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is business entity that has significant market power, that is, the power, to charge high prices.[3] ..." [Source: Wikipedia - the free encyclopedia for those needing a quick answer, albeit sometimes with a caveat]

The Glass-Steagall Act should be re-instated; But I don't think ANY- or at least too few- politicians have the guts to do it....

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