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July 29, 2013

Larry Summers thinks US banks should maybe be a little bit bigger

Larry Summers now seems to be the front-runner to become the next head of the US Federal Reserve.

If he gets the job, he’ll be both the guardian of monetary policy and one of the most important financial regulators in the country. As such, we figured it was worth digging through some of Summers’ recent statements to try to get a sense of what kind of regulator he would be.

Summers is sometimes queried on his role in the Clinton-era deregulatory push, which peaked with the passage of the Gramm-Leach-Bliley Act in 1999. As the cognoscenti cog-know, that law removed protections that had previously separated commercial banks from Wall Street trading houses. And many, such as Elizabeth Warren, now a senator from Massachusetts, argue that the repeal of those protections “mattered enormously” to how the crisis played out.

Summers begs to differ. He tends to deflect criticism with a couple of arguments. He points out that some of the highest-profile financial failures of the crisis—Bear Stearns and Lehman Brothers—were individual Wall Street investment banks. In other words, they would have been allowed to exist even before Gramm-Leach-Bliley was enacted. ”If you look at the big failures, Lehman and Bear Stearns were both standalone investment banks,” he told a British interviewer back in early 2012. ”Perhaps if they had been combined with banks they would have been in a more healthy situation.””

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Read full Quartz article here

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