There are lots of ways to break up the big banks
I’ve been going to Alt Banking every week for almost 5 years. Here’s what I’ve learned:
There are lots of ways to break up the big banks.
First, there are ways to create incentives for banks to get smaller by themeselves. For example, we could impose more capital requirements on bigger banks than smaller ones, or more regulations, or we could say that banks beyond a specific size couldn’t engage in certain kinds of behavior, or trade certain kinds of derivatives, or we could impose taxes on those trades that are heavier for larger banks. Progressive taxes that max out at 100% profit when the bank is as big as Bank of America.
Next, we could outlaw huge banks. We could do this by simply defining a legal limit to the size of a bank, or its geographic scope, or the amount of risk it carries. We could even say that its connections to the other financial institutions has to be adequately uncomplicated that, in an event of bankruptcy, we could let it fail and it wouldn’t be a biggie. We could give banks 4 years to get compliant.
Or we could go nuts and say that banks are no longer able to “create money” at all, which is to say we could put an end to fractional reserve lending. Or, we could just do that for big banks, where reserve requirements would get larger as banks get larger. We could change accounting laws around banking to make it a lot harder for them to hide risk. We could make it illegal for them to trade derivatives, or impose a new version of Glass-Steagall to make certain things illegal. We could impose all sorts of laws that would blow them out of the water permanently.
Or we could go the other way entirely, and nationalize one of the big banks, or all of them, and let them remain big but treat them like utilities, and make them super duper boring, and pay no bonuses and have the CEO get paid something like $200K.
And I’m not saying what specific we should do – my heart’s probably closest to imposing high capital requirements and limited trading for big banks so they’ll make themselves smaller – but in any case, there are plenty of things we could do that there is no political appetite for. Once again, there’s no shortage of possible plans.
What we do have a shortage of, though, is political will. That’s why we don’t talk about this very much, and we might not have talked about it at all had Sanders not entered the race.
Which is why, when I hear people complaining about Sanders not have a specific enough plan for breaking up the big banks, I think it’s hogwash. What Sanders has, which is sorely needed, in fact is the crucial missing ingredient to any discussion around big banks, is the political will to do something. Once the political will is there, the details can be sorted out by people who think about this stuff all the time.