From the NYTimes: How to Cut Megabanks Down to Size
by Gilbert Keith
"The official was Richard W. Fisher, the president of the Federal Reserve Bank of Dallas and a longstanding truth-teller about too-big-to-fail banks. On Wednesday, in a speech in Washington, Mr. Fisher laid out a compelling proposal for shrinking financial giants in order to protect taxpayers. He suggested that megabanks be chopped into pieces, so that no one of them could endanger the financial system if it ran into trouble.
That may sound like a return to the Glass-Steagall Act, the Depression-era law that separated investment banking and commercial banking until it was dismantled in 1999. But Mr. Fisher’s plan is more sophisticated than Glass-Steagall, in that it recognizes how complex big financial institutions have become.
Why? Mr. Fisher argued that megabanks not only threaten taxpayers with bailouts, but that their continuing failure to lend is also thwarting the Fed’s efforts to jump-start the economy by keeping interest rates low.
Smaller institutions, by contrast, have continued to lend in the post-crisis years […] community banks — defined as those with no more than $10 billion in assets — hold less than one-fifth of the nation’s banking assets. Nevertheless, they hold more than half of the industry’s small-business loans.
There are roughly 5,600 commercial banking institutions in the country, Mr. Fisher noted. Some 5,500 of them are community banks. While these organizations account for 98.6 percent of all banks, they hold only 12 percent of total industry assets. They are routinely allowed to fail if they get into trouble. Few of them did during the crisis.
Contrast these figures with those of the nation’s 12 largest banks, whose assets range from $250 billion to $2.3 trillion. They account for 0.2 percent of all banks but hold 69 percent of industry assets.
“Financial stability rests on a level playing field that rewards sound judgment and integrity and penalizes excessive risk and complexity financed by taxpayer dollars,” Mr. Fisher said in his speech. “Government must retain its role as the financial system’s watchdog, but it should render no institution immune to market discipline.”
I hope we will all see the day.