While breaking up the banks has a lot of punch as a slogan, as a policy it's hardly been fleshed out. People talk about caps on liabilities or assets, different taxes, excluding certain business lines, or anti-trust actions -- but though I am all ears, I haven't seen a really detailed policy proposal. This is illustrated by the excellent Shahien Nasiripour, who is collecting regional Federal Reserve presidents -- gotta catch 'em all! -- who believe we should break up the banks. But there's just one problem:
"If you had a clear road map, I'd be for it," [St. Louis Fed President James Bullard] said Thursday at the Hyman P. Minsky Conference in New York. "If there was a good way to do so, if you had a clear road map about how you were going to go about it, and why you were going to break them up in this particular way."
Nasiripour observes that "that kind of fundamental reform -- and candid talk -- is largely absent in Washington," but that is largely because this sort of substance-free hand-waving and a four bucks will get you a cold beer on a Friday afternoon and little else. Bullard and his fellow Midwestern Fed presidents are as influenced by their regional banks as the New York Fed is by their financial constituents. While their advocacy can be a useful rhetorical bludgeon for reformers, they're not really providing a lot of firepower toward a real solution.
In fact, I just went over Simon Johnson's presentation from the Making Markets Be Markets conference, and the policies he advocates are the same as the Obama team's solution, albeit with the important distinction of more specificity. From Johnson's write-up: "The best route towards creating a safer system is to have very large and robust capital requirements which are legislated and difficult to circumvent and revise ... triple core capital at major banks to 15-25 percent of assets." Which is a good idea.
But to my point: If Johnson and these Fed presidents, who all firmly think that breaking up the banks is important, can't think of a way to do it, I'm not sure that we should expect anyone else to do so, either.
-- Tim Fernholz
