MarketWatch: Too-Big-To-Fail Banks Are Bigger Than Ever


MarketWatch’s Rex Nutting finds it absurd that banks complain about over-regulation and “hostility” from the federal government. He says that the “too-big-to-fail banks are, in fact, being rewarded and allowed to become even bigger. (“Punish the bankers? We’re still rewarding them”).

It is just business as usual, Nutting says. The politicians and their crony banks have an understanding. Politicians like campaign contributions and banks like no-strings-attached government subsidies. Given the clubby personal relationships, it’s not too difficult to work things out in a way that both sides are satisfied.

According to Nutting, the Federal Reserve, like the Securities and Exchange Commission, is a captive agency unduly influenced by the banks it is supposed to regulate. The Fed lobbied Congress to provide hundreds of millions of dollars in bailouts and further provided ? and continues to provide ? very low interest loans to the banks. Banks take in billions at almost zero cost and “are charging their best customers 20% or more to borrow on their credit card” ? a very nice racket if you can get it on it. Despite what you might call being set up to succeed, “the big banks are still in a precarious position,” according to Nutting.

On top of that, the article notes that a year ago the Fed allowed 19 banks to pay out $33 billion to their shareholders despite the impact on the safety and soundness of the still-shaky banks, and over the objection of the FDIC, which is on the hook to pay depositors if a bank fails. The banks needed to reserve that cash as a safety cushion, in case they came to own too much bad European bank debt, or became embroiled in a mortgage fraud scandal, for example. Why did the Fed approve the payments of billions of dollars of dividends to “the insiders who manage the banks and lobby the Fed every day”? The banks are now “$33 billion closer to another catastrophe,” according to the article.

Far from being busted up, Nutting writes, the too-big-to-fail Wall Street banks are bigger today than they were four years ago when they had to be bailed out to keep them from completely dragging down the entire economy. The Fed is scheduled to release the latest bank stress test results on March 15. It will be interesting to see the results.

Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.