Do big banks put America at risk of financial failure? At an AEI event on Wednesday, a panel of financial experts scrutinized the idea of too-big-to-fail banks. Thomas Koenig of the Federal Deposit Insurance Corporation argued that the complex, intermingled structure of the US financial system puts the whole framework at risk. He pointed out that government safety nets and bad regulation allow banks to make high-risk decisions that could easily spin out of control.
In an effort to avoid another Great Recession, former senator Ted Kaufman (D-DE) called for separation between commercial and investment banks, recommending a return to the Glass-Steagall Act. He said that the president and Congress must pass simple, effective laws that regulators can use as guidelines to keep banks "in their lanes."
AEI's Peter Wallison raised the issue of uncertainty and how that affects the assessment of regulators. He argued that existing data does not confirm that the size of the bank accounts for any instability in the markets. Consequently, he concluded that Congress should support competition by allowing banks to go bankrupt instead of bailing them out.
Big banks were once regarded as the creatures of unfettered capitalism. But after Washington bailed the big guys out, and after a string of studies suggesting that those banks are really the creatures of implicit bailouts, even the most laissez-faire individuals need to ask whether the big banks are too big.
Do big banks create instability, increase the likelihood of bailouts, and increase demand for regulations? Would they be so big without government support? And, finally, if they are too big, what should be done?
Please join us for a discussion of the genesis and consequences of America’s largest banks, and solutions for returning them to market-oriented fundamentals.
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