Time to Break up the Big Banks?

in Regulatory Enforcement
March 27th, 2013

Harvey Rosenblum, Executive Vice President & Director of Research at the Federal Reserve Bank of Dallas, visited BU Law School this week. Dr. Rosenblum delivered a lecture on 21st Century Financial Crises along with a few comments about his recent WSJ piece on shrinking the too-big-to-fail banks, co-authored with Dallas Fed President Richard Fisher.

As financial blogger Barry Ritholtz points out in a post this week on The Big Picture, Rosenblum is one among many distinguished financial experts, bankers, and economists who believe that the big banks should be broken up. Be sure to take a look at Ritholtz’s list with links to individual comments and proposals.

In the words of financial expert John Mauldin from his discussion of Cyprus and TBTF in this week’s Thoughts From the Frontline,

“The problem we have been discussing is not just a problem in Europe. In a general sense, it is the problem of banks that are too big to be allowed to fail. It is time to rein in the size of large banks before the next crisis. BAC and C are not just too big to fail, they are too big to effectively manage. If banks want to get larger, they should pay more deposit insurance to offset the implicit guarantees they get from taxpayers to cover losses beyond the ability of an FDIC to underwrite. I would go so far as to increase the capital requirements of banks as they increase in size, giving an incentive for management to break them up into smaller (and more manageable) pieces.”