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Thursday, April 5, 2012

ABA Keating: Dissolve ‘Too Big to Fail,’ Not Large Banks

Breaking up large banks -- as the Dallas Federal Reserve Bank has advocated -- is not the way to end too big to fail, and dismantling them would be counterproductive to the nation’s economy, ABA President and CEO Frank Keating said this morning in an Investor’s Business Daily op-ed piece.
The U.S. can claim only five of the top 50 banks in the world. Reducing their size would reduce their capacity to serve America's largest businesses. ... European or Asian banks would quickly move to fill the banking needs of our corporations.
To truly end too big to fail, Keating said, focus more on the word “fail” than the word “big.”
If a large … bank fails, it doesn’t mean shut the doors and walk away. The business can continue, but … its investors and creditors [must] take losses. Government policies and actions must reinforce this, not put qualifiers on it.
The Dodd-Frank Act sets up new controls and grants new authorities, he noted, but it also contains provisions allowing regulators to protect at least some creditors.
Absent … if-you-fail-you-lose policies, the market will assume the best in a worst-case scenario. While that is not right, it is equally unfair to assume the worst and force the pre-emptive break-up of large institutions.

The top 10 U.S. banks today employ 1.1 million people, routinely deliver innovations that make managing money safer and more convenient and provide critical services to U.S.-based multinational companies that in turn employ millions. How can dismantling them be better for us than stating, unequivocally, that Uncle Sam won’t rescue those that fail?
Read Keating’s the op-ed.

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