Keep the Fed on Main Street
By THOMAS HOENIG
NYT
Kansas City, Mo.
LAST week, I visited Santa Fe, N.M., and spoke to one of America’s many Main Streets: more than 300 small-business owners, real estate developers, artists, bankers and other citizens. A good number of them, experiencing the fallout of the financial crisis and feeling the stress it put on New Mexico’s banks, were angry and frustrated.
You see, New Mexico’s financial institutions were not too big to fail. They were never invited to meetings and told to accept financing from the Troubled Asset Relief Program. As a result, banks and residents of Santa Fe, like those in towns all over Middle America, have struggled mightily through this recession. It was clear that, like politics, the effects of financial crises are mostly local.
This explains why it undermines the very foundation of our economic system when the government decides that a financial institution is too big or too powerful to fail. The big banks and investment companies hold a significant advantage in the competition for funds (for example, from depositors and bond holders), because creditors know that they will be bailed out when a crisis occurs. This advantage has systematically undermined the competitive position of every smaller bank, and has enabled the largest banking organizations to more than double their share of industry assets since the 1990s. These trends serve neither the national economy nor communities like Santa Fe. And in the end, they are a burden on taxpayers.
Unfortunately, the proposal for regulatory reform now before the Senate does not eliminate the concept of too-big-to-fail, and it deliberately narrows the central bank’s focus to Wall Street alone. This undermines reform in at least two important ways.
(More here.)
NYT
Kansas City, Mo.
LAST week, I visited Santa Fe, N.M., and spoke to one of America’s many Main Streets: more than 300 small-business owners, real estate developers, artists, bankers and other citizens. A good number of them, experiencing the fallout of the financial crisis and feeling the stress it put on New Mexico’s banks, were angry and frustrated.
You see, New Mexico’s financial institutions were not too big to fail. They were never invited to meetings and told to accept financing from the Troubled Asset Relief Program. As a result, banks and residents of Santa Fe, like those in towns all over Middle America, have struggled mightily through this recession. It was clear that, like politics, the effects of financial crises are mostly local.
This explains why it undermines the very foundation of our economic system when the government decides that a financial institution is too big or too powerful to fail. The big banks and investment companies hold a significant advantage in the competition for funds (for example, from depositors and bond holders), because creditors know that they will be bailed out when a crisis occurs. This advantage has systematically undermined the competitive position of every smaller bank, and has enabled the largest banking organizations to more than double their share of industry assets since the 1990s. These trends serve neither the national economy nor communities like Santa Fe. And in the end, they are a burden on taxpayers.
Unfortunately, the proposal for regulatory reform now before the Senate does not eliminate the concept of too-big-to-fail, and it deliberately narrows the central bank’s focus to Wall Street alone. This undermines reform in at least two important ways.
(More here.)
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