12:09 PM » Let's Relax, and Not Break Up the Big Banks
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Proposals for radical restructuring of the banking sector have surged again, fueled by the recent wave of banking scandals. These scandals add to the public's justified anger at the contributions of bankers to the financial crisis and its extremely damaging aftermath. They also magnify a sense among many that the big banks are both too powerful and too big to manage well. However, anger and frustration have been very poor policy guides for dealing with the financial system and I firmly believe that many of the proposals to restructure banking would damage all of us. Lest this sound like the pleadings of an ex-banker, which I am, let me emphasize my prior strong and vocal support for financial reform. This includes the two major reform packages: the Dodd-Frank Act and the Basel III accord, the international agreement requiring major increases in bank safety margins. These reform packages are by no means perfect, but their overall approaches are necessary and valuable. However, regulation is always about the balancing of costs and benefits. We could have an extremely safe financial system that provided insufficient fuel for the dynamic economic growth that we need, just as we could have extremely safe cars that cannot go more than 50 miles an hour and cost twice as much as they do now. We should not lose sight of the real economic advantages to having at least a few large U.S. banks that can efficiently provide a full range of services and products globally. There are a series of proposals to force major changes in the structure of the banking industry, with the intent of either forcing the largest banks to be much smaller or requiring the separation of their deposit-taking and lending activities from their securities market activities. These include: Proposals to "restore Glass-Steagall", although these are often quite vague Thomas Hoenig's idea of forcing most securities activities out of commercial banking groups The Volcker Rule, especially in harsher...