A need to end the too-big-to-fail policies

Community bankers don’t cry wolf unless there really is one prowling close by.  For nearly three decades, the Independent Community Bankers of America (ICBA) has been warning policymakers that the financial services system was becoming dangerously overconcentrated. It’s not safe or healthy to have four financial institutions controlling over half of our nation’s banking assets. It’s not fair to the citizens of Main Street to have so much of our economy put at risk by the reckless behavior of handful of megafirms on Wall Street. Unfortunately, the current financial crisis has increased the threat of too-big-to-fail because the megabanks have only gotten larger, more complex and more interconnected.  It’s time to hold these firms accountable before they do any more damage.

Suddenly, we’re not the only ones sounding a warning.  The president, prominent economists, legislators and regulators are all joining ICBA in delivering the same message. And. if you visit our website, MyCommunityMyBank.org, you’ll see what average Americans are saying about the pressing need to end too-big-to-fail. 

People who understand what’s at stake understand that ending the too-big-to-fail policies of recent years is one of the most urgent goals facing the nation, and the only way to truly protect consumers, small businesses and the economy. Institutions that are so large and so complex that their failure would pose a grave threat to the financial system, taxpayers and economy must be eliminated to avoid future financial crises. Financial regulators must be given the authority to restructure, downsize and even dissolve, in the most extreme cases, the institutions that fall into this category. 

Additionally, ICBA supports two types of systemic-risk fees that would hold systemic-risk institutions accountable and, ultimately, protect and compensate taxpayers and the FDIC Deposit Insurance Fund from future risk exposure. First, Congress should impose a systemic-risk premium on all systemically dangerous holding companies to help defray the cost of enhanced regulation of these companies and to pay for the orderly unwinding of the affairs of any of these institutions should they fail. Second, Congress should require all FDIC-insured affiliates of systemically dangerous financial companies to pay a systemic-risk premium to the FDIC in addition to their regular FDIC premiums to compensate the agency for the increased risk they pose.

ICBA has sent our proposals for dealing with the systemically dangerous firms to both the House and Senate. We are urging Congress to deal with this too-big-to-fail problem once and for all so the nation’s community banks and America’s taxpayers never again have to pay for and suffer through another catastrophic financial meltdown.