By CATHERINE RAMPELL
Update | 2:50 p.m.
Excerpts of reactions from around the econoblogosphere to the administration’s (still somewhat hazy) bank proposal:
“The problem of ‘too big to fail’ isn’t that some institutions are large, it’s that there is currently no statutory authority to wind down a financial conglomerate in the way that the F.D.I.C. is currently authorized to unwind banks. More effective supervision, coupled with the authority to seize and wind down large firms, is the appropriate remedy to ‘too big to fail.’” — Rob Nichols, president of the Financial Services Forum
“I am concerned, as a general matter, about arbitrarily limiting the size of the banks, since our modern, complicated, global economy demands that the United States have at least a few banks capable of providing a very wide range of services each on a large enough scale to be efficient. However, there certainly may be circumstances in which regulators ought to push a bank or banks to be smaller in general or smaller in certain activities.” — Douglas J. Elliott, Brookings Institution
“Now note we have to move two other pieces of reform in order to make this credible: we need a system where parties are aware of the derivatives holdings of an investment bank precrisis, say through a clearinghouse or exchange, so to make resolution credible and prevent panics. We also need a new resolution authority to handle these firms in a manner that won’t destroy the system.” — Mike Konczal, Roosevelt Institute
“The banks of course will scream blue murder, while at the same time trying to say that those kinds of walls exist already. But they can’t have it both ways.” — Felix Salmon, Reuters
“In principle, I am against attempts by government to structure industries. But I take the view that the political economy of small banks is better than that of large banks. Large banks find it easy to persuade regulators that they are doing wonderful things and find it easy to persuade politicians that they need to be bailed out. Maybe small banks would find this task somewhat harder.” — Arnold Kling, EconLog
“We believe providing for strengthened regulatory oversight and flexibility like that originally proposed by the administration, as opposed to arbitrary restrictions on growth and activities, is a more effective way of mitigating systemic risk and ending ‘too big to fail.’” — Tim Ryan, president and C.E.O. of Securities Industry and Financial Markets Association
“Will the White House have the courage of its convictions and really fight the big banks on this issue? If the White House goes into this fight half-hearted or without really understanding (or explaining) the underlying problem of unfettered banks that are too big to fail, they will not win.” — Simon Johnson, BaselineScenario and M.I.T. Sloan School of Business
“Should the proposal go through, it will force some banks to close down or sell off certain units. The more likely — and most desired — response would be for Goldman and Morgan to give up their bank holding company status and go back to obtaining their funding from the market. The higher cost of capital and challenge of raising funds will make it harder for them to be so big. That’s the point.” — Daniel Gross, Slate
“I don’t think we’ll get anywhere near the amount of change we need when all is mostly said and little actually gets done — but this is a move in the right direction. Too bad it didn’t happen months ago.” — Mark Thoma, Economist’s View
“But it should be absolutely clear that banks which are too big to fail must be shrunk, and that using government-guaranteed consumer deposits to trade securities for profit is a terrible idea. It is a relief to see these holes in the regulatory structure get some attention.” — The Economist
“Perhaps it’s time to recognize the limits of regulators, no matter how diligent and sophisticated they try to be. If you can’t truly keep on top of a complex industry that changes constantly, maybe the wiser course is just to limit what the individual players can do.” — Edmund L. Andrews, Capital Gains and Games
“This wouldn’t have done anything to stop Lehman, which also had very little to do with commercial banking.” — Ezra Klein, The Washington Post
“How does it affect the political economy of bank lobbying?” — Tyler Cowen, Marginal Revolution
“Without more detail on how the limits on the market share of liabilities will be measured and enforced, it’s hard to say how effective they’ll be, but that’s probably the best angle to take when thinking about shrinking bank size.” — Tim Fernholz, The American Prospect
Excerpts of reactions from around the econoblogosphere to the administration’s (still somewhat hazy) bank proposal:
“The problem of ‘too big to fail’ isn’t that some institutions are large, it’s that there is currently no statutory authority to wind down a financial conglomerate in the way that the F.D.I.C. is currently authorized to unwind banks. More effective supervision, coupled with the authority to seize and wind down large firms, is the appropriate remedy to ‘too big to fail.’” — Rob Nichols, president of the Financial Services Forum
“I am concerned, as a general matter, about arbitrarily limiting the size of the banks, since our modern, complicated, global economy demands that the United States have at least a few banks capable of providing a very wide range of services each on a large enough scale to be efficient. However, there certainly may be circumstances in which regulators ought to push a bank or banks to be smaller in general or smaller in certain activities.” — Douglas J. Elliott, Brookings Institution
“Now note we have to move two other pieces of reform in order to make this credible: we need a system where parties are aware of the derivatives holdings of an investment bank precrisis, say through a clearinghouse or exchange, so to make resolution credible and prevent panics. We also need a new resolution authority to handle these firms in a manner that won’t destroy the system.” — Mike Konczal, Roosevelt Institute
“The banks of course will scream blue murder, while at the same time trying to say that those kinds of walls exist already. But they can’t have it both ways.” — Felix Salmon, Reuters
“In principle, I am against attempts by government to structure industries. But I take the view that the political economy of small banks is better than that of large banks. Large banks find it easy to persuade regulators that they are doing wonderful things and find it easy to persuade politicians that they need to be bailed out. Maybe small banks would find this task somewhat harder.” — Arnold Kling, EconLog
“We believe providing for strengthened regulatory oversight and flexibility like that originally proposed by the administration, as opposed to arbitrary restrictions on growth and activities, is a more effective way of mitigating systemic risk and ending ‘too big to fail.’” — Tim Ryan, president and C.E.O. of Securities Industry and Financial Markets Association
“Will the White House have the courage of its convictions and really fight the big banks on this issue? If the White House goes into this fight half-hearted or without really understanding (or explaining) the underlying problem of unfettered banks that are too big to fail, they will not win.” — Simon Johnson, BaselineScenario and M.I.T. Sloan School of Business
“Should the proposal go through, it will force some banks to close down or sell off certain units. The more likely — and most desired — response would be for Goldman and Morgan to give up their bank holding company status and go back to obtaining their funding from the market. The higher cost of capital and challenge of raising funds will make it harder for them to be so big. That’s the point.” — Daniel Gross, Slate
“I don’t think we’ll get anywhere near the amount of change we need when all is mostly said and little actually gets done — but this is a move in the right direction. Too bad it didn’t happen months ago.” — Mark Thoma, Economist’s View
“But it should be absolutely clear that banks which are too big to fail must be shrunk, and that using government-guaranteed consumer deposits to trade securities for profit is a terrible idea. It is a relief to see these holes in the regulatory structure get some attention.” — The Economist
“Perhaps it’s time to recognize the limits of regulators, no matter how diligent and sophisticated they try to be. If you can’t truly keep on top of a complex industry that changes constantly, maybe the wiser course is just to limit what the individual players can do.” — Edmund L. Andrews, Capital Gains and Games
“This wouldn’t have done anything to stop Lehman, which also had very little to do with commercial banking.” — Ezra Klein, The Washington Post
“How does it affect the political economy of bank lobbying?” — Tyler Cowen, Marginal Revolution
“Without more detail on how the limits on the market share of liabilities will be measured and enforced, it’s hard to say how effective they’ll be, but that’s probably the best angle to take when thinking about shrinking bank size.” — Tim Fernholz, The American Prospect
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