Too Big to Fail, a U.S. television drama film was first broadcast on HBO, May 23, 2011. Based on Andrew Ross Sorkin‘s non-fiction book Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves (2009), the film received public acclaim and 11 nominations at the 63rd Primetime Emmy Awards.
The term too big to fail has since become part of our vocabulary. The financial debacle of 2008 caused many of us to ask, why aren’t the big banks held to more accountable guidelines and why are we not breaking them up? Yet here it is 2015 and not much has changed since the film first aired.
Sure we still talk about doing so. In fact, a recent Wall Street Journal article, tells us there’s not a lot of love for the big banks nowadays. The article mentions it is not just a notion discussed by left wing activists. The good news is bank analysts and shareholders are starting to mull the issue as well. But maybe too little, too late?
The article quotes the Progressive Change Institutes’ recently released survey of 1500 randomly selected likely voters, which found that a majority of U.S. voters would be quite happy for Citigroup and other big banks to be broken into pieces. According to the poll, 58% of likely voters, Republicans, Democrats and Independents, said they would support breaking up “big banks like Citigroup.” Unfortunately the way the question was asked was far from neutral and leads me to question the poll itself.
The survey asked voters if they’d like to “break up the big banks, like Citigroup, which played a big role in the financial crisis and recently demonstrated they still have too much power by lobbying for and winning the repeal of a major reform designed to stop Wall Street abuse and taxpayer bailouts?”
[tweetthis twitter_handles=”@RichardMBowen”]Would you support the break up of big banks that contributed to the financial crisis?[/tweetthis]
Maybe as a result of push back — I really don’t know — The Institute then took another survey — with a reworded, much more neutral question being asked, “Should we break up the financial institutions that are deemed “too big to fail,” even if that means breaking up some of the biggest power players on Wall Street?” This time 55% supported a breakup.
The writer says J.P. Morgan Chase & Co.’s CEO “James Dimon was peppered with questions, on a recent call regarding Chase’s fourth quarter earnings, about whether divvying his bank into a few separate units – say, consumer banking, investment banking, business banking, and wealth management – wouldn’t unlock more potential profits for shareholders, since regulators have made it pretty darn clear that they’re not particularly enamored with the mega-bank model.”
FYI: by asset size, J.P. Morgan Chase is the biggest bank in the U.S, Bank of America is second, followed by Citigroup.
Mr. Dimon claimed this wouldn’t make sense, that it’s too complex and that the various “units work together to produce revenue and save expenses.” He complained about being “under assault” by regulators.
Citigroup executives have made similar arguments. Citigroup’s Chief Financial Officer, John Gerspach, told reporters recently, that the bank has already shrunk immensely since the financial crisis; with about $1.84 trillion in assets, compared to $2.19 trillion at the end of 2007.
“It’s a smaller, it’s a simpler and – I’d argue – it’s a safer institution than it was six or seven years ago,” Mr. Gerspach said. Asked if the bank had considered a breakup in the past, such as the depths of the financial crisis, Mr. Gerspach replied: “Everybody goes through various ‘what if’ scenarios. … Of course we’ve considered alternate structures.”
A Citigroup spokeswoman said Monday that the bank is “rightly scaled to serve our clients’ needs.”
“Since the financial crisis, Citi has returned to the basics of banking, has sold over 60 businesses and divested of more than $700 billion in assets,” the spokeswoman said.
So maybe a conversation is starting. But I’m not holding out hope that change will happen anytime soon. Still it’s gratifying to read that at least the regulators are causing some waves.
I’m curious though, if you had been polled how would you have answered on the more neutral breaking up the big banks question? Should this be a question openly asked in the upcoming presidential campaigns?
[tweetthis twitter_handles=”@RichardMbowen”]What would you answer to a more neutral question on breaking up the big banks? [/tweetthis]
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FYI: The Progressive Change Institute is a policy nonprofit that is an arm of a PAC called the Progressive Change Campaign Committee. The poll was conducted Jan. 9-15 by GBA Strategies, sampling 1,500 randomly selected likely voters.
The 58% support to “break up big banks like Citigroup” included 71% support from Democrats and 51% support from Republicans. The poll also found 50% support for taxing “Wall Street transactions” such as trading stocks and bonds. The group has floated the idea as a way to reduce speculative trading.
Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
