In a moment of striking candor last week, Attorney General Eric Holder came close to agreeing that major banks have become “too big to jail.”
“I am concerned,” Holder told the Senate Judiciary Committee in answer to a question about the failure to bring criminal charges against HSBC and other banks, “that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them…” Awareness of the potential “negative impact on the national economy, perhaps even the world economy” can have an “inhibiting impact on our ability to bring resolutions that I think would be more appropriate,” he explained.
In other words, the awesome size and power of the biggest banks threatens not only the economy, but also the rule of law. While that is obviously an unacceptable attitude for top officials of the Justice Department – and an attitude they had better rethink – it reinforces the case for downsizing these institutions.
It also reminds us that financial regulation cannot be effectively reformed until we address the question of bank scale and complexity. If the government balks at the idea of punishing a bank implicated, as HSBC was, in money-laundering for drug lords and terrorists, it seems certain that banks will not be held accountable for violating technical rules on risk management. In short, no regulations will work as long as the biggest banks can count on more of this soft-gloves treatment.
If the Justice Department is stymied by fear of the economic repercussions, “That’s a very scary, very ugly way to run the country,” Halah Touryalai wrote on Forbes.com. adding: “It’s no wonder then that big banks hate the idea of breaking up.”
You Tube Video of Senator Elizabeth Warren Questioning Financial Regulators (Senate Banking Committee Hearing, 2/27/13)
Holder Confesses That Banks Are Too Big To Prosecute (Mike Lux, Crooks and Liars, 3/9/13)
Tell Obama to End Too Big to Jail (Campaign for a Fair Settlement Petition)