Flickr photo via Nowviskie
Note: Public Citizen submitted testimony to the House Financial Services Subcommittee on Oversight and Investigations in advance of its hearing today titled “Who is Too Big to Fail: Does Dodd-Frank Authorize the Government to Break Up Financial Institutions?” The testimony is available here.
Public Citizen commends the House Financial Services Subcommittee on Oversight and Investigations for holding today’s hearing to discuss the government’s authority to break up financial institutions under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
In January 2012, Public Citizen called on the Federal Reserve and the Financial Stability Oversight Council to break up the financial behemoth Bank of America. We relied on a relatively obscure provision in the Dodd-Frank Act, Section 121, which grants financial regulators authority to mitigate the grave threat that an institution poses to U.S. financial stability. More than 30,000 people have signed our petition calling for regulators to break up the bank into pieces that are smaller, simpler and safer for market stability.
But regulators appear unwilling to use the broad authorities in their arsenal to safeguard financial stability, and the Federal Reserve Board’s three-paragraph response to our detailed petition suggests that regulators may not be taking seriously their responsibilities under Dodd-Frank.
Not exactly making Sherlock Holmes proud, the detectives at the Federal Reserve who missed the housing bubble have finally discovered that banks have a reputation problem. At long last, a high level regulator has begun a conversation with banks on exactly this problem
In a speech delivered Feb. 28 in Atlanta, Federal Reserve Board of Governors Member Sarah Bloom Raskin plunged into the mud. “Reputations . . . have been tarnished,” Gov. Raskin understated.
The governor merits applause for channeling the public’s textured view of her own institution. “Many Americans direct their anger at not only banks, but policymakers as well. Because the economy pulled back from the brink of depression only through a massive and unprecedented infusion of public dollars, American taxpayers feel that they were forced into a position of accepting that the government had to put a lot on the line to save the financial system from ruin. And many of those taxpayers are still unhappy about such a massive government intervention that seemed to aid banks that were not held to account, while distressed households were left to pay the price.”
Raskin becomes the first to build a case that regulators should work to restore integrity in banking—for the banking industry’s own good. She cites figures that many Americans eschew banks. They’re not trustworthy, despite the fact that several thousand include the word “trust” in their name. (Fraudsters, of course, often begin a scam with the phrase, “Trust me.”)
For the mighty Fed, such self-criticism is most welcome. In her remarks, Raskin cites regulatory capture, but indicates that this problem deserves a second speech. “Regulatory capture” is a euphemism for the concept of regulated industries infiltrating the regulators themselves. There’s a revolving door between Wall Street and Washington. We’ve got “Government Sachs.”
Grab your box of tissues, chick flick, pint of Ben & Jerry’s and – your ATM card? That’s right, Bank of America. We’ve got some breaking up to do.
You see, it’s not you; it’s me. Well, actually, it really is you. You’re too big to fail and I just don’t think you’re strong enough to make it through hard times.
But, dear banking behemoth, it doesn’t have to hurt. As smaller, less complex institutions, you wouldn’t put us all in jeopardy if your strength did slip (and a New York University study predicted you’re the most likely to).
There are things you can do to feel better.
Put a little pep back in your step with some heartfelt belted oldies. You remember that old diddy, “Breaking Up Is Hard to Do,” don’t you? Well, here’s a new spin.
There’s nothing better to cheer you up than seeing Geithner get down, Bernanke boogie and Paulson get frisky for finance. We couldn’t forget Ken Lewis or Brian Moynihan either. Let’s break it down and break them up.
Public Citizen presents, “Breaking Up Is Hard to Do,” Bank of America style.
By Rick Claypool and Bartlett Naylor
Flickr photo by wintersoul1
The Wall Street Journal’s Victoria McGrane reports:
The so-called Volcker Rule has broken the record for attracting the most comment letters submitted on any Dodd-Frank proposal.
Regulators have received a whopping 17,000-plus comments on the proposal, a Federal Reserve spokeswoman said. And some poor junior-level staffers are still counting them. The rule restricts U.S. banks from making bets with their own money.
More than 15,700 of those comments came from activists mobilized by Public Citizen’s online organizing efforts.
Five years ago, Capital One Financial Corp. did not exist as a bank. If the Federal Reserve approves its acquisition of ING Direct and a slice of HSBC, it will be the fifth largest bank in the United States, as measured by deposits. With that approval, we’ll need to adjust the college basketball March Madness-type bracket published not so long ago by Mother Jones (see hyperlinked graphic below) that describes how we arrived at the too-big-to-fail catastrophe that has landed us in the economic muck.
Capital One entered mainstream banking with a series of acquisitions: Hibernia Corporation in 2005, North Fork Bancorporation in 2006, and Chevy Chase Bank in 2009. Rebranding each of these firms, Cap One’s ubiquitous advertising –what’s in your wallet—aims to convince prospective clients that it shouldn’t trust the marauding barbarians with their money. Are they referring to any of the banks above?
Should the Federal Reserve approve Cap One’s application to join the madness bracket? On Tuesday, Sept. 20, the Federal Reserve opens the first of three hearings, in Washington, D.C., to be followed by a second in Chicago, and a third in San Francisco. These hearings follow a request by Public Citizen along with the National Community Reinvestment Coalition, Rep. Barney Frank of Massachusetts and other partners for greater Fed care.