The Wall Street reform bill that is before the Senate, now that Republicans have ended their filibuster, will make important changes to our laws to provide for the orderly liquidation of these trillion-dollar banks if necessary. Those changes are important but not sufficient.
Fifteen years ago, the assets of the six largest U.S. banks made up 17 percent of our gross domestic product. Today, the top six banks make up 63 percent of GDP. No wonder our economy's fate is tied to their stability. As former FDIC chairman William M. Isaac has said, these banks are "too big to manage, and too big to regulate." With mega-banks, a single insolvency can send our economy into a tailspin. We shouldn't wait for trouble; we should avoid it.
We have experience in how to wind down banks — the Federal Deposit Insurance Corp., unfortunately, is doing a lot of that these days. But a $10 billion bank is much different from a $1 trillion bank with international operations and connections. And while Wall Street maintains that size may not matter, I'd love to short the survival of that sentiment should any of these mega-banks run into trouble down the road.
Think about the position we would put some future administration and Congress in if the trends toward concentration remain unchecked. Will Washington really have the fortitude in 10 or 20 years to shut down a bank that has grown to more than 20 percent of our nation's GDP?
Subscribe now to get the latest news delivered right to your inbox.