A Voice from the Wilderness

Thomas Hoenig, the Vice Chairman of the FDIC and former President of the Federal Reserve Bank of Kansas City, has not stopped his campaign to break up the biggest Wall Street banks by restoring the Glass-Steagall Act. His most recent presentation to the Boston Economic Club featured some observations as to where we stand now:

• Mega banks are now “larger and more complex than they were pre-crisis” “The eight largest banking firms have assets that are the equivalent to 65 percent of GDP”; 

• “The average notional value of derivatives for the three largest U.S. banking firms at year-end 2013 exceeded $60 trillion, a 30 percent increase over their level at the start of the crisis”; 

• The largest banks are “excessively leveraged with ratios, on average, of nearly 22 to 1”;

• Taxpayer bailouts have not ended under Title II of Dodd-Frank and, most likely, not under Title I as well;

• Smaller regional banks “are smothering under layers of new regulations” even though they are holding “significantly higher levels of capital than the largest banking and financial firms”

His basic point is that Dodd-Frank "cannot solve the problem of bailout so long as firms remain too large, too leveraged, too complicated, and too interconnected to be placed into bankruptcy when they fail".