The Troubled Assets Relief Program (TARP) – the controversial bailout of Wall Street in 2008 – has come to an end, the Treasury Department has announced. The remaining shares of the banks and General Motors owned by the government are to be sold off.
However, the reality is that the biggest Wall Street banks are now even larger than they were four years ago, when they were deemed ‘too big to fail’. The five largest control almost 44% of all US bank deposits.
The biggest banks keep getting bigger because they can borrow more cheaply than smaller banks. This is due to the investors’ belief that the government will bail them out if they get into trouble, rather than force them into a form of bankruptcy (as the new Dodd-Frank law makes possible).That’s why it’s necessary to limit the size of banks and break up the biggest ones.
Washington may be getting the message. A few months ago Dan Tarullo, the Fed governor who specializes in bank regulation, proposed capping the size of the banks’ balance sheets.
Some former titans of Wall Street are saying much the same thing. Even Sandy Weill, who created Citigroup (which required $445 billion in TARP loans and asset guarantees) is proposing the biggest banks be broken up.
The new Congress may also be supportive. The new chairman of the House Financial Services Committee, Texas Republican Jeb Hensarling, has been a strong ally of small banks in their push to rein in their bigger rivals, and has expressed concern about the largest being too big to fail.
It’s not irrelevant that the Dallas branch of the Federal Reserve Board, in Hensarling’s home district, has also proposed breaking up the biggest.
Meanwhile, over in the Senate, Ohio Senator Sherrod Brown is a strong advocate for breaking up the big banks and is now on the Senate Finance Committee. And Elizabeth Warren, the scourge of Wall Street, will sit on the Senate Banking Committee.
In other words, the timing is right. The oven is ready. All we need is another multi-billion dollar banking loss – like JP Morgan Chase’s last year – and the biggest banks are cooked.
