
'Too Big to Jail' Admission Changes Debate - cdvonstinkpot
http://www.americanbanker.com/issues/178_45/how-holder-s-surprising-too-big-to-jail-admission-changes-debate-1057303-1.html
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bsims
I have worked with a number of banks and credit unions. One of the biggest
challenges on the regulatory side is that of unintended consequences.
Lawmakers create a policy meaning to spare regional banks/credit unions, but
ultimately they get carried along because their 3rd party providers have to
comply (core processors, Visa, etc.), which pass along those costs/rules
inevitably to the smaller organization.

Pros: Capital would be lent more efficiently as region's know their
markets/customers better. Generally better service. Possibly fewer loan losses
due to knowing the local market better.

Cons: The largest drawback is that of security, as many regional banks/credit
unions are amazingly insecure. Cost to the consumer would probably go up
slightly in the form of higher loan rates and lower savings rates, but it
could easily be argued large banks aren't distributing these savings anyway.

The most amazing piece I've seen was when TARP money was given to the banking
industry with the goal of it being lent to consumers and businesses. Instead
the capital was used to fuel M&A within the banking industry which ultimately
lead to fewer jobs.

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contingencies
_In order to regain trust in banking, what is needed is a real change in
culture, embedding integrity and eradicating the 'what can I get away with’
attitude._ \- Iain Coke, Head of Financial Services Faculty, Institute of
Chartered Accountants (UK), September 2012. As quoted in
[http://www.telegraph.co.uk/finance/libor-
scandal/9574676/Lib...](http://www.telegraph.co.uk/finance/libor-
scandal/9574676/Libor-reform-is-first-step-to-City-overhaul.html)

 _We need to rethink as a society what banks are for, what exchanges are for,
and what clearing houses are for. If they are for the profit of the few at the
expense of the many now, that is because it is the business model we have
permitted. If banks, markets and clearing are protected because they have a
social function, we should make certain that social function is adding value.
If it isn't, then we need some new models and some new rules._ \- The London
Banker, July 2012. [http://londonbanker.blogspot.co.uk/2012/07/lies-damn-lies-
an...](http://londonbanker.blogspot.co.uk/2012/07/lies-damn-lies-and-
libor.html)

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dexen
The `Too Big to Jail' was coined by Matt Taibbi in
[http://www.rollingstone.com/politics/news/why-isnt-wall-
stre...](http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-
jail-20110216), which goes through great many details on the matter. I believe
the catchy phrase did much to bring popular awareness to the issue.

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ecubed
What would be the economic consequences of breaking up big banks?

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kerno
It depends on what "breaking up the banks" means.

If we just mean to break them up into smaller banks, it is hard to say whether
negating the benefits of scale will raise costs higher than the competitive
pressure of no longer having dominant institutions effectively being able to
set prices.

If we mean to break up securities trading and deposit-taking divisions into
separate institutions (as Glass-Stegall was meant to enforce until repealed)
then we may see a return to a more stable Wall Street, as the house would be
forced to play it's own money instead of yours, and 'banking' will be pure and
boring again.

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damoncali
There is also that the largest banks have the implicit support of the federal
government, and therefore have an artificially low cost of capital relative to
smaller banks (because the Feds will prevent a default). That benefits someone
somehow, although it can be hard to figure out who.

~~~
kerno
This, for me, is ultimately the major reason that private banking
institutions, as they are currently formed, must be changed.

The implicit and even explicit backing of a government of a private
institution, forced as a result of that bank's size and market impact, allows
that institution to take larger risks and to privatise profits that are
generated as a result of the public's support.

This is a major unintended consequence of saving big banks during the
financial crisis.

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chii
yep, privatized profit, but socialized losses.

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eli_gottlieb
In which case the banking sector is just another crisis waiting to happen.
Smash it down, and we'll see just how big they are.

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squozzer
"Too Big To Jail" = venue moved to Court of Public Opinion. Verdict = guilty.
Sentence = ?

