Meet the new big bank, same as the old big bank

The closer you look at Obama's proposals to reduce bank size, the less you see

Topics: Wall Street, Bank Bailouts, Barack Obama, How the World Works, Paul Volcker, Bank Reform,

Earlier today I flagged President Obama’s peculiar recommendation that “we prevent the further consolidation of our financial system.” Since one of the biggest problems with the financial sector is that the biggest banks are already far too large, preventing additional consolidation is beside the point — we need reform that dramatically reduces consolidation.

Simon Johnson provides additional evidence that Obama’s phrasing was no accident. He reports that during a background briefing Thursday morning, senior administration officials said “their proposals would freeze biggest bank size ‘as is.’”

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Johnson is right: “this makes no sense at all.”

James Kwak, Johnson’s collaborator at The Baseline Scenario, adds more:

We already have a rule saying that no bank can have more than 10 percent of all deposits in the country, and that rule has been waived for three banks already. Simon and I favor strict limits and no regulatory wiggle room. There is talk, however, that the proposed size restrictions will leave the large banks as is and simply curb their future growth — which would mean, effectively, that they would have to raise the current 10 percent cap (since three banks are already over it), which can’t possibly be right.

If you’re looking for more analysis of the regulatory proposals, Mike Konczal, writing at NewDeal 2.0, is off and running with excellent commentary. But if the fight that Obama promised with Wall Street is a fight that allows too-big-to-bail banks remain at exactly the same too-big-to-fail size they are now, it’s not going to be much of a tussle.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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