The United States needs big banks and calls to break them up are misguided, said Dick Bove, a banking analyst at Rochdale Securities.
Calls to break up big banks have risen in recent years since the 2008 financial crisis, and came to the spotlight anew when Federal Reserve Governor Daniel Tarullo said in a speech earlier this week that Congress should consider capping the size of the country’s banks.
The repeal of the Glass-Steagall Act in the 1990s allowed financial institutions to run investment banks and commercial banks under one roof. Before then, commercial and investment banks had been separated since the Great Depression.
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
But according to Bove, U.S. banks need to stay large to compete in a global financial arena.
“If a governor of the People’s Bank of China had suggested capping the size of these banks and limiting their operating flexibility, it would have been seen as a direct threat to the United States’ position in the world — which it is,” Bove wrote in a note, according to CNBC.
“However, this statement was made by a governor of the Federal Reserve — the governor most charged with regulating the banks. It is a threat to our system.”
Tarullo said in a speech at the University of Pennsylvania Law School that he saw “a case to be made for specifying an upper bound” to the size of the country’s financial institutions.
“It would be most appropriate for Congress to legislate on the subject,” Tarullo said in prepared remarks.
Some lawmakers agree, including Rep. Marcy Kaptur, D-Ohio.
“After Wall Street’s 2008 economic collapse led to the Great Recession, it has become evident that to move forward, we must return to the past to ensure a safe, viable financial system for a 21st-century American economy,” Kaptur wrote in a recent U.S. News & World Report opinion piece.
“We must reinstate the Glass-Steagall Act of 1933. Glass-Steagall is not a one-size-fits-all cure for the ills of the financial sector, but it is exactly the type of reform that Congress must implement against the pleas of Wall Street executives.”
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
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