Too
Big to Be Honest
By
Phil Mattera, editor of the Dirt
Diggers Digest
For a long time the big financial institutions of the United States had an unrelenting urge to grow bigger. Acting on the principle that only the big would survive, banks and related entities spent the 1990s and the early 2000s gobbling up one another at a furious pace.
The result was a small group of
mega-institutions such as Citigroup and Bank of America that nearly brought
down the whole financial system in 2008.
Federal
regulators declined to break up the giants, which in recent years have grown
only larger. But now some of the rules put in place in the wake of the meltdown
are having the desired effect.
Some major financial players are deciding to
split themselves up in the hope of evading the more stringent capital
requirements imposed on companies designated as systemically important (SiFi)
institutions.
The
latest firm to bow to this pressure is insurance behemoth MetLife, which just announced it is exploring a spinoff of
its retail life and annuity business in the U.S. into a new presumably non-SiFi
company.
The move comes in the wake of moves by General Electric to dismantle
large parts of its huge GE Capital business. Among the businesses that
contributed to GE Capital’s heft was the banking operation it purchased from MetLife in 2011 as part of
a previous move by the insurer to reduce its regulatory oversight.
Now other large insurers such as Prudential Financial and American International Group, the latter the recipient of a $180 billion federal bailout, may take similar steps. Apart from the regulatory pressures, AIG has been dealing with breakup calls from investors such as John Paulson and Carl Icahn, who dubbed it “too big to succeed.”
It
remains to be seen whether the big banks will succumb to the breakup. For the
moment they are resisting, but that’s the stance MetLife had long maintained.
Their sagging stock prices make them susceptible to a move by someone like
Icahn.
It’s
gratifying to see regulation working as designed to make the country less
vulnerable to large reckless institutions and a bit less enthralled with
financialization. GE’s announcement that it is moving its headquarters to
Boston is part of its retreat from finance.
Yet
more still needs to be done to get the banks to clean up their act. Stricter
capital rules are fine, but the likes of B of A and JPMorgan Chase need to feel
more pressure to obey the law. They’ve had to cough up larger and larger
financial settlements and in a few
cases have even had to plead guilty to criminal charges. Yet they
haven’t gotten the message.
Perhaps
what’s needed are “honesty requirements” to go along with the more stringent
capital requirements. In other words, banks that break the law would have to
sell off the businesses involved in the misconduct. This would accelerate the
move away from overly large financial institutions and hopefully put more
operations in the hands of firms that are willing to play by the rules.
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Note: the Dirt Diggers Digest Enforcement
page, which provides links to the compliance data posted by more
than 50 federal regulatory agencies, has just been updated and expanded.