February 08, 2016
Steve Eisman Opposes Breaking Up The Banks
Posted by David Zaring

Media observers will be a little curious about the timing of an op-ed that isn't really asking for much, even though it sort of serves as a rebuke to one of the themes of the Bernie Sanders campaign.  Still, Eisman, the Big Short protagonist, on why breaking up banks is a bad idea:

It’s no longer accurate to say that the large banks pose a systemic danger to the American economy. Some argue that they should be broken up solely because they are too politically powerful. Perhaps so, although that power hasn’t managed to prevent regulators from dismantling bank leverage and risk. Furthermore, no advocate of a breakup has come forward with a plan on how to do it. Large banks are global, complex, integrated institutions. Breaking them apart would be incredibly difficult, long and disruptive, and the banks might have to freeze loan growth during the process, slowing our economy even further.

He thinks that banks were too risky because they were overleveraged, but now that they are not levered up, they are safe.  You will note that safety isn't the only reason to break up the banks.  Apart from the politics, there's the antitrust problem, and maybe large financial institutions discourage experimentation. Moreover, maybe even low leverage banks are prone to bank runs. I'm not convinced by this, but it's always nice to see another unicausal theory of the financial crisis. 

Finance, Financial Crisis, Financial Institutions | Bookmark

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