Loading
Gulf Coast community bankers have argued for years that the too-big-to-fail dictum ushered in by Washington, D.C., punishes small banks at the expense of big ones.
Now there's an admitted government bureaucrat, a high-ranking official with the Federal Reserve Bank of Dallas, who agrees with them. Indeed, Harvey Rosenblum, executive vice president and director of research at the Dallas Fed, says the policy has morphed into a safety net for behemoth banks that “do crazy things.”
Rosenblum, who recently spoke about his disdain for the theory at an event at New College of Florida in Sarasota, says being big in and of itself isn't the problem. The problem, he says, is when the biggest banks, like JPMorgan Chase, Citibank and Goldman Sachs, do all sorts of risky non-banking activities yet remain protected like a regular bank.
“It's called deposit insurance for a reason,” Rosenblum tells Coffee Talk. “It's supposed to protect depositors, not support casino-like activities.”
Rosenblum and his boss, Dallas Fed President Richard Fisher, came out against too big to fail in a public report last spring. The duo have since spoken out about the issue multiple times, both in speeches and newspaper columns.
Dodd-Frank, adds Rosenblum, a federal financial reform bill ostensibly written to correct some of these issues, isn't a good fix. “Nobody can comply with a law they don't understand,” says Rosenblum, the past president of the National Association for Business Economics. “It's incomprehensible.”
Instead of massive regulation, Rosenblum proposes to basically provide some tough love. For starters, big banks will be forced to compete like all the others in the marketplace if the safety net is taken away. Rosenblum, who says he brings his “libertarian streak” to his analysis, says the issue has an overhanging sense of urgency, given the teetering economic recovery.
“If we don't address the fundamental problem,” says Rosenblum, “we will have another crisis on our hands sooner than later.”
Your free article limit has been reached this month.
Subscribe now for unlimited digital access to our award-winning business news.
Join thousands of executives who rely on us for insights spanning Tampa Bay to Naples.
