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Majority favors breaking up big banks

Nearly two-thirds of respondents to this week’s RBJ Daily Report Snap Poll favor breaking up the nation’s largest banks.

The Federal Reserve and the Federal Deposit Insurance Corp. last month said that five of the nation’s eight largest banks lacked “credible” plans to go through bankruptcy without a taxpayer bailout. The five banks face an Oct. 1 deadline to fix their plans. If they fail to do so, regulators ultimately could require the banks to sell assets and businesses.

The so-called “living will” plans are a requirement of the 2010 Dodd-Frank law passed in the wake of the financial crisis. “The goal to end too big to fail and protect the American taxpayer by ending bailouts remains just that: only a goal,” Thomas Hoenig, vice chairman of the FDIC, said in a statement.

According to the Initiative on Global Markets at the University of Chicago’s Booth School of Business, the four largest domestic U.S. banks have roughly 40 percent of the industry’s domestic assets. In the late 1990s, they held 13 percent of domestic assets.

According to the Booth School of Business, the four largest domestic U.S. banks have roughly 40 percent of the industry’s domestic assets. In the late 1990s, they held 13 percent of domestic assets.

JPMorgan Chase, one of the five banks cited by the Federal Reserve and FDIC last month, also is among the three largest banks in the Rochester region, ranked by local deposits. The others are No. 1 M&T Bank and No. 3 Canandaigua National Bank and Trust Co. Combined, the top three have nearly 50 percent of the local banking market. (KeyCorp’s planned acquisition of First Niagara Financial Group would create the second-largest bank in the Rochester market by deposits.)

Half the respondents to this week’s poll are ambivalent about the three leading banks holding roughly 50 percent of local deposits, in terms of its impact on the local economy. This compares with 41 percent who say that’s bad for the Rochester economy, and 9 percent who say it’s good.

Sen. Bernie Sanders of Vermont, a Democratic presidential hopeful, is a leading voice among those who want to break up the largest U.S. banks. Republican Neel Kashkari, who served in the Treasury Department during the financial crisis and became chief of the Federal Reserve Bank of Minneapolis in January, says “breaking up large banks into smaller, less connected, less important entities” should be considered.

Others oppose breaking up the largest banks, saying it would be costly, could have a negative impact on consumers and might not increase the stability of the financial system.

Nearly 540 respondents participated in this week’s poll, which was conducted May 16 and 17.

Do you favor or oppose breaking up the nation’s largest banks?
Favor:  65%
Oppose:  35%

In Rochester, the three leading banks hold roughly 50 percent of local deposits. In your view, is this good or bad for the local economy?
Good:  9%
Bad:  41%
Neither good nor bad:  50%

COMMENTS:
Choice and freedom are what our country is founded on. I use a small community bank. The government should deal with national defense, end-of-life services, immigration and international trade. The government should police their own house first! Leave free enterprise to be free.
—Mark Williams

What needs to be done is to reinstate Glass-Steagall, which separated investment banks and commercial banks. (The Glass-Steagall Act was established in 1933 and repealed in 1999.)
—Keith Griswold

People blame the banks for the mortgage meltdown, but it was really the doing of Fannie and Freddie, who authorized and financed the subprime mortgages in the first place—as authorized by Congress. It was a left-wing (Barney Frank/Christopher Dodd) scheme gone bad. At the same time, there are many huge banks in other countries and ours need the leverage to compete in the global finance markets.
—Jim Cronin

The U.S. needs bigger banks in order to lead and to compete in the world stage. Smaller and weaker banks in the U.S. will be less capable to assist U.S. businesses in world trade, financing, FX and leverages. Smaller banks would become acquisition targets by their foreign larger rivals. Not necessarily good for the country.
—Patrick Ho

Four banks control 40 percent of banking assets (vs. 13 percent 20 years ago)—an outrage. “Too big to fail” is crony capitalism at its best, creating legal oligopolies and enhancing power and control of a few at the expense of many.
—D. Giambattista, Fairport

The most effective way of “breaking up” the banks is to eliminate Dodd-Frank and all the other regulation driving the small banks out of the market. In order to distract attention from government housing policy and the Federal Reserve, there has been a narrative that the financial crisis was brought on by the Gramm-Leach-Bliley Act (the partial repeal of Glass-Steagall) and the Commodity Futures Modernization Act. This is ridiculous. There is nobody happier about all the regulation that has been put in place than the big banks. Just like every other industry regulation (it) is neck breaking for the little guy.
—Kenya Burn-Moore, Rochester

Traditional “savings and loan” banking should be separated again from investment banking, and if “breaking up” the big banks is the means to do that, then yes, we should go down that path. The federal government, i.e. the people, should not be on the hook for risks taken by investment bankers.
—Kristina Rogers, KLR Consulting LLC

Do we never learn? How many times do we have to get “burned” by the “too big to fail” syndrome? When I was in business, nobody was there to bail me out except my own worth. This “something-for-nothing” mentality has got to stop!
—JA DePaolis, Penfield

I like when I travel the country or abroad and can go into a branch of a bank I also find at home. I also like having smaller local banks who compete very well against the big banks and know the local business landscape better than the big banks. It is good competition, and good for the consumer. I think there is a place and a need for both.
—George Thomas, Ogden

Dodd-Frank was the worst thing to hit banks and business. It was total overkill and overreaction. Time and again the response to financial crises is overreaction, not the enforcement of the laws already on the books. As long as there is a level playing field and competition is maintained, the banks should be left alone.
—Clifford Jacobson M.D., Vanguard Psychiatric Services PC

5/20/2016 (c) 2016 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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