Big banks could get chopped down
While JPMorgan and Wells Fargo post strong earnings, Elizabeth Warren and John McCain are preparing a bill to break up such giants.
The Massachusetts Democrat and former Harvard law professor has joined forces with Sen. John McCain, R-Ariz., to introduce a bill that would essentially bring back the Glass-Steagall Act, a Depression-era law that required banks to separate their risky businesses, such as underwriting deals, from less risky ones, such as taking deposits. It was repealed in 1999, and many people have argued that the demise of Glass-Steagall is one of the causes of the financial crisis.
As Bloomberg News noted, Warren and McCain's view is also shared by "radicals" such as Sandy Weill, who turned Citigroup (C) into a behemoth through an acquisition spree, and Richard Parsons, a former Time Warner (TWX) CEO who also served on Citigroup's board. Citigroup was slow in integrating the companies that Weill acquired and has spent years lately disposing of assets to simplify its business. Federal Deposit Insurance Corp. vice chairman Thomas Hoenig also is keen on the idea, the news service says.
Warren has argued that the four largest banks are 30% larger now than they were five years ago and that they continue to "engage in dangerous high-risk practices." Her disdain for the banking industry is hardly a secret. While speaking at a 2010 forum sponsored by the Financial Services Roundtable, a Wall Street lobbying group, she likened the industry to "snakes" and denounced their lending practices as "garbage."
Now Warren has another challenge: surging Wall Street profits. JPMorgan (JPM), the largest bank, and Wells Fargo (WFC) on Friday both reported better-than-expected quarterly results. The industry doesn't want to damage its ability to print money, but it's also keen on protecting its image.
JPMorgan's cantankerous CEO Jamie Dimon has argued that no bank should be "too big to fail" and that there needs to be a way for lenders to go bust without causing a second Great Depression -- or a third, depending on how you view the latest financial crisis. Dimon, though, is no fool and understands the prevailing political winds. It's no accident that he called Warren up to congratulate her on election.
Wall Street has little choice but to work with Warren to establish tougher regulations that it can tolerate. Whether her efforts will be successful in hyperpartisan Washington, even with an ally like McCain, is tough to say.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
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YES, the (slow) repeal of Glass-Steagall was most certainly a big factor in the 2008 crisis, and even more certainly the reason for the taxpayer risk used in TARP--which was scary and a bad precedent.
Interesting how the media is already arguing the banker's case. Shows how much these big banks work the media (and the congress) to keep their perks.
Ditto Old_ and Eric
Glass-Steagall was to prevent depressions - and a result of learning from previous mistakes - repealing it was an act of "unlearning" a lessen from history. Increasing the # of banks increases competition. A large nation dominated by a few megabanks is not good for consumers.
We also now have many tech tools to easily facilitate payments between banks & even individuals, plus ATM networks, cash back at retailers (no charge!), etc. So we are not moving "backward" with smaller banks. Smaller hometown banks will be part of the trend of going "back to the future" - buying real produce, not "Franken Fruits/Veggies", natural healing, better resource usage (reuse, repurpose, make do, do without), etc.
The 99% have no need for the specialized products/services the 1% need - so why should we share in the cost of creating & offering them? Or mitigating their risks with our limited hard-earned dollars?
I do need to disclose that my specialty for two decades has been marketing independent small community banks, regional banks & credit unions. I am currently unemployed. More banks, more management groups needed - means more employment opportunities for me - I have then skills they need and am ready to go!
Every person, entity, or company should never be allowed to be too big to fail. Including the U.S. Gov.
Hey Oblahblah, Make GE pay taxes, and make GM build plants in the U.S.
Glass-Steagall helped protect us from unmitigated greed for 70 years, and history has shown that unmitigated greed always leads to a bubble. And all bubbles burst. This is essentially what happened to the real estate market in 2008. Congress has attempted to regulate the industry (Dodd-Frank, Volker Rule), but all this has done is make it more difficult for small businesses to borrow money. What we really need is the return of Glass-Steagall, because it will force these TBTF banks to spin off their investment activities, which is what got them into trouble in the first place.
I'm glad to see a bi-partisan effort to pass this legislation, but the powerful Wall Street lobby will be using a full court press to stop it. With so many of our representatives on the take, my expectations are pretty low.
Let the free market work and these problems won't exist in the first place.
Classic lady;This is probably the first time you`ve ever been right.You`re learning from
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