Tags: stiglitz | break | up | banks

Stiglitz: Break Up the Biggest Banks

By    |   Friday, 24 Apr 2009 02:25 PM

Nobel laureate Joseph Stiglitz and former IMF chief economist Simon Johnson recommend that the government now break up the biggest banks.

In Congressional testimony, Stiglitz, a professor at Columbia University said, "We have little to lose, and much to gain, by breaking up these behemoths, which are not just too big to fail, but also too big to save and too big to manage."

Big banks are more prone to taking too much risk, which ends up causing crises, he says.

Stiglitz criticizes the government’s Troubled Asset Relief Program (TARP) for keeping big banks alive while letting smaller banks go by the wayside.

TARP is unlikely to succeed because it allows the big banks to keep dictating the financial system’s fate, he says.

Johnson, a professor at MIT, says banks should be split up by region or business area to prevent them from monopolizing the system.

"This may seem like a crude and arbitrary step, but it is the most direct way to limit the power of individual institutions,” he told Congress.

That’s especially true “in a sector that, the last year has taught us, is even more critical to the economy as a whole than anyone had imagined," Johnson says.

Federal Deposit Insurance Corp. Chairwoman Sheila Bair agrees with the economists.

She recently told Congress that it "should examine … whether there should be limitations on the size and complexity of institutions whose failure would be systematically significant."

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Nobel laureate Joseph Stiglitz and former IMF chief economist Simon Johnson recommend that the government now break up the biggest banks.In Congressional testimony, Stiglitz, a professor at Columbia University said, "We have little to lose, and much to gain, by breaking up...
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2009-25-24
Friday, 24 Apr 2009 02:25 PM
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