What others say: Bernie Sanders’ breakup wouldn’t fix Wall Street

  • Sunday, January 10, 2016 7:42pm
  • Opinion

In some quarters of the Democratic Party, apparently, it’s no longer enough to call for the breakup of the big banks: You have to pledge to do it faster than your rivals.

That may explain Bernie Sanders’s promise on Tuesday to “break ‘em up” within his first year in office.

This is hardly a model of thoughtful policy making. For one, the government is not the best judge of how financial institutions could be efficiently divided. Beyond that, even smaller and more focused institutions can cause a lot of damage, as the 2008 demise of Lehman Brothers (a pure investment bank) and the savings and loan debacle of the 1980s eloquently demonstrate. A common factor was their inability to handle losses.

A smarter approach is to require that financial institutions employ more equity capital — that is, money from shareholders — so they can better absorb losses. Under current rules, the largest banks must have enough equity to absorb only a 5 percent net loss. That’s more than before, but hardly adequate to prevent the kind of distress that can damage the economy.

Raising the level would make the system more resilient and also improve market discipline: If shareholders had to bear fuller responsibility for a bank’s risks, they might see a case for dividing it into smaller, more manageable units. How and whether to do so, of course, would be up to the shareholders.

Higher capital requirements have the added advantage of being more politically feasible than a straight bank breakup. Some Republicans, such as presidential candidate Jeb Bush, have suggested policies that go in this direction.

Sanders, the second-leading Democratic presidential candidate, is not wrong to be concerned about the risk financial institutions pose to the U.S. economy. Unfortunately, his proposed solutions are inadequate.

— The Bloomberg View

More in Opinion

Alaska Chief Medical Officer Anne Zink promotes getting immunized with the flu shot this winter. (Photo courtesy Alaska Department of Health and Social Services)
Immunize when you winterize

An annual flu shot plus the COVID-19 vaccine protects Alaskans and our health care system, too.

(Peter Segall / Juneau Empire File)
Opinion: Dunleavy’s first act as governor was unconstitutional

That’s according to a ruling by Senior U.S. District Judge John Sedwick.

This Aug. 3, 2021, photo shows Juneau International Airport.  The Federal Aviation Administration shared recommendations on Thursday for improving aviation safety in the state. (Michael S. Lockett / Juneau Empire File)
Opinion: How the FAA will improve the margin of aviation safety in Alaska

Alaska depends on aviation more than any other state…

Central Peninsula Hospital is seen in Soldotna on Wednesday, Oct. 13, 2021. (Camille Botello/Peninsula Clarion)
Voices of the Peninsula: Perspective of an educator in a ‘high-risk’ group, part 2

During some of the darkest days of my time in ICU, it was obvious where we all live is a special place.

Lawmakers havereturned to the Alaska State Capitol for a fourth special session. (Peter Segall / Juneau Empire File)
Opinion: Revenues should be determined before more PFD spending

The governor believes the dividend drives the entire calculation. Sadly, he has it backwards

Ronnie Leach. (Photo provided)
Point of View: For Domestic Violence Awareness Month, #weareresilient

At the onset of COVID-19, we expanded our services in a way to ensure COVID-19 consciousness.

Rep. Don Young talks during a June 2021 interview with the Empire. (Ben Hohenstatt / Juneau Empire File)
Opinion:Where’s Don Young when America needs him?

Once upon a time, avoiding political controversy was completely out of character for Young.

Peter Zuyus
Voices of the Peninsula: Seniors appreciate vaccination efforts

To those who have worked to encourage vaccination we say: Be proud, you are, in fact, saving lives.

Jackson Blackwell (courtesy photo)
Voices of the Peninsula: Carbon dividends are the bipartisan climate solution

By levying a gradually increasing price on carbon, U.S. emissions will be slashed by 50% in 15 years.

Gov. Mike Dunleavy holds a press conference at the Capitol on Tuesday, April 9, 2019. (Juneau Empire file photo)
Dunleavy: Facts Matter

Political opportunists care more about spreading political untruths than accepting the facts.

Steve Hughes. (Photo provided)
Voices of the Peninsula: We are all victims of COVID-19

It is disturbing to hear, as a triage nurse, the many reasons cited for not getting a vaccine that are based on misinformation.

teaser
Opinion: LGBTQ+ Alaskans deserve respect and dignity

Like every state that lacks equality, we need federal protection.