Federal Reserve’s James Bullard: Break-up JPMorgan and other large banks

May 21, 2012 by · Leave a Comment
Filed under: Opinion 

Sounds like its “Ma Bell” time for the large banks.    Back in the 1980’s the government found that AT&T in its current form as the the nations only carrier was too big and it hampered innovation and competition.  As a result, they split up the carrier into seven smaller regional carriers that had to compete.   This over the long run was very effective in creating a marketplace that bought more choice to consumers and opened the way for more businesses to spring up to serve this more open market.

Breaking up these large financial institutions into smaller pieces would do the things like reduce risk on the FDIC in the event of insolvency.  It would also create the ability for boutique firms to be created to do some of the specialized services that the national banks could do under one roof.  Overall it will be good for the consumers to not have as much concentration of capital and wealth in so few places, we already have the Federal Reserve System in place and that is the largest concentration of capital on behalf of the United States government, we don’t need more.  I want more local and regional banking and if you need international banking then you can go to places like New York or Los Angeles for banking firms that handle those type of services.

The point I read about defending large banking institutions is that they need this size to be competitive globally.    My question would be what size is big enough?    Why as a society should we under-write a blank check on the size they can get.   The only thing I see this size helps with is the large pile of derivatives that are at such large numbers is really looks like they are being using as some of of manner of “hiding” risk and or losses on “bets”.   I believe we are going to see a real investigation into the banks and what is going on under the skirt.    Popular support is building and as more knowledge on the financial industries inner workings come to light, more questions are going to be asked by the common man and the rising to the top until our representatives can ignore these question no longer.    This is healthy and long overdue.

Money News: Another Federal Reserve policymaker on Thursday called for the break-up of big banks like JPMorgan Chase & Co., saying that firm’s recent large trading loss underscores the difficulty of regulating such banks and the dangers they pose.

“This is why you want these companies to have plenty of capital,” St. Louis Fed President James Bullard said in response to questions after a speech to a Rotary Club. “I would back my colleague (Dallas Fed President) Richard Fisher in saying that we should split up the largest banks.”

Bullard’s comments echo those of Fisher, who advocates breaking up the five largest U.S. financial institutions. Fisher said in the wake of revelations that JPMorgan had reported $2 billion in losses due to derivatives trades that he is worried that the biggest banks do not have adequate risk management.

Bullard told reporters that his call for breaking up big banks includes JPMorgan.

“We do not need these companies to be as big as they are,” he said. The regulatory system would be much simpler if large firms were broken up, rather than trying to write complicated rules to capture all of the potential risks at complex firms, he added.

“It would be simpler to have smaller institutions so that they could fail if they need to fail,” Bullard said.

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