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March 9, 2016

American Banker: Are Big Banks Necessary?

“The drive to break up the big banks has won a surprising number of adherents from both sides of the political spectrum — everyone from Neel Kashkari, the Republican head of the Federal Reserve Bank of Minneapolis, to Bernie Sanders of Vermont, the Democratic socialist who has made it the heart of his campaign.

“The issue is usually analyzed from a political standpoint, focusing on whether a breakup is possible and how it could be done.”

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“Dennis Kelleher, president of the public advocacy group Better Markets, argued that any legitimate market function that the big banks are performing would not simply disappear if those banks were made smaller and less complex. Perhaps they would be provided at greater cost, but that cost would likely be a better reflection of external costs posed to the public by the banks’ risk to the taxpayer.

“I have no doubt that if there is a service that the market wants … that that service will be provided by somebody,” Kelleher said. “Will it be provided at the exact same price? Probably not. Am I worried about that? No.”

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“Bank critics, however, are not convinced. Kelleher said banks are active in generating research to demonstrate that they facilitate real commerce, but they don’t provide enough hard evidence.”

“There’s no robust data set that can be independently analyzed that confirms a single claim made by a ‘too big to fail’ bank for some purported service or product that is desperately needed by somebody in the real economy that won’t be provided if they were broken up,” Kelleher said. “Zero. There’s none.”

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Read the full American Banker article by John Heltman here.

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