What do you think about the moral hazards of “Too Big To Fail” and financial monopolies or near monopolies such as overly consolidated banking and mortgage industries?
Daniel Tarullo, a governor of the Federal Reserve System, spoke for the first time last week about potentially imposing a size cap on the largest U.S. banks.
Capping bank size is the modern equivalent of trust busting, and attracts support from across the political spectrum. People on the right and left don’t understand why megabanks should get implicit government subsidies and worry that top executives of very large banks have become too powerful.
Both concerns are legitimate and need to be addressed. Now the Fed is pushing in the same direction.
So writes Simon Johnson, former chief economist, International Monetary Fund, currently a professor of entrepreneurship, Massachusetts Institute of Technology, Sloan School of Management.
Read his whole article: Fed Should Push to Cut Biggest Banks Down to Size – Bloomberg.
Questions: What impact would capping banks sizes have on the real estate and insurance industries? Would capping only US banks cause problems? If they are capped, would they then be automatically allowed to “fail”: go through governmental takeovers, bankruptcy proceedings, reorganizations, etc.? Would those things be sufficient to avoid a repeat of the 2008 crash? What other regulatory changes should be seriously considered?