Camden Fine: We Must Solve ‘Too Big to Fail’ Problem

Wednesday, 10 Apr 2013 12:24 PM

By Michael Kling

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Waiting to solve the problem of “too big to fail” financial institutions is tempting disaster, says Camden Fine, president and CEO of the Independent Community Bankers Association.

“We cannot wait until it is too late. We must remember our history of too big to fail because we cannot afford to repeat it,” Fine writes in an article for American Banker.

He says he agrees with others that the issue needs to be discussed. “But what we cannot do is continue to play the waiting game,” he warns. “An honest debate over our ‘too big to fail’ problem and a sound policy response are incompatible with a wait-and-see approach to the laws already on the books. We have been down that road before.”

Editor's Note:
The Truth About the Economy — Government Documents Lead to Eerie Conclusion

Congress was supposed to have ended the too big to fail problem when it passed the Federal Deposit Insurance Corp. Improvement Act (FDICIA) of 1991, Camden recalls. The act’s opponents, he notes, argued that too big to fail institutions help the banking system and economic growth and helps prevent liquidity crises and bank failures.

Since then, the problem has increased as banks consolidated and grew. Despite the Dodd-Frank Act, which gives regulators greater powers, financial giants continued growing after the financial crisis with the help of their perceived government guarantee against failure.

“As long as we continue to support banks of such magnitude and interconnectedness,” Camden says, “there is not a politician born who would allow them to fail, because they would not only bring down their ‘too big to fail’ brethren, they would also crush the entire financial system with their sheer weight. This includes our nation’s nearly 7,000 community banks.”

Legislation introduced this week by Sen. Bernie Sanders, I-Vt., and Rep. Brad Sherman, D-Calif., would direct the government to break up large financial institutions that could threaten the financial system. The Treasury Department would have 90 days to identify those financial institutions.

“In my view,” Sanders stated in a press release, “no single financial institution should have holdings so extensive that its failure could send the world economy into crisis. At the very least, no institution, no CEO in America should be above the law. If an institution is too big to fail, it is too big to exist.”

The six largest U.S. financial institutions now have assets of nearly $9.6 trillion, a figure equal to about two-thirds of the nation’s gross domestic product, according to Sanders.

These six institutions issue more than two-thirds of all credit cards, over half of all mortgages, control 95 percent of all derivatives held in financial institutions and hold more than 40 percent of all bank deposits in the United States.

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

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