How Do You Solve a Problem Like TBTF?

Surprise, surprise – the oligopoly of big banks in the US are still too big to fail. This report, along with the recent comments by Neel Kashkari about the need to possibly break up the big banks, will certainly give a boost to Bernie Sanders’ campaign right before the critical New York primary.  Neel Kashkari is the current president of the Federal Reserve Bank of Minneapolis and an archetypical Wall Street insider – a Goldman Sachs alumnus who went on to run TARP for Treasury Secretary Paulson under George Bush and then ran an unsuccessful race for governor of California as a Republican.  Not the type of guy you would be expecting to recommend breaking up the big banks. The other point of view, which is reflected in the Clinton campaign, is that this is simply part of the process that Dodd-Frank put in place.  Certainly, increased capital requirements and the resulting reduction in leverage has made the banks much safer and has forced some banks to shed portions of their business. Other non-bank financial institutions have spun off their financial subsidiaries like GE Capital simply to avoid being regulated by Dodd-Frank.  And in order to pass the “living will” test that Dodd-Frank demands, the banks may have to, in essence, break themselves up. Certainly, they are going to be under increasing political and now, it seems, regulatory pressure to do just that. And, of course, we haven’t even touched on the distinct lack of competition there is when the six biggest banks control so much of the US financial activity. But that’s for a later post about the oligopolies/monopolies in so many sectors of our economy.