Simon Johnson and James Kwak provide a good history of banking across American history in order to give readers a perspective on how we got to the current environment. They argue that banking has become too large in the United Sates, but this is not a new battle. This power shifting between government and banking has been raging since the the country's earliest history. Historically, the US has never been comfortable with large banks, yet the consolidation and growth has been ongoing to the point that the financial future of America is tied to a mere six large institutions.
Unfortunately, telling us how we got to this point does not mean that we have easy solutions to the perceived problem of a growing banking oligarchy. It is not clear how large is the problem. Other countries have a limited number of banks. Bank failures has been a ongoing problem. Large banks have significant economies of scale. The problem throughout our history is determining how to best regulate banks and how centralized should banking be. Unfortunately , with a limited number of large institutions, there is greater risk of regulators being co-opted by their industry.
The authors do not have good solutions for the "too big to fail" problem. The continuation of privatized profits and socialized risks has not been solved. In fact, current new regulation since the financial crisis only perpetuates or institutionalizes the too big to fail issue. There has been nothing done to reduce the size of large institutions or have them bare the costs of their size. Any increases in regulation can be spread over a large asset basis in ways that cannot be done with smaller institutions. The small will get weaker and the big will get stronger under a protective umbrella.
The financial history of the US is in a state of flux, but it not clear that we will be moving to more decentralized and competitive banking environment.
Unfortunately, telling us how we got to this point does not mean that we have easy solutions to the perceived problem of a growing banking oligarchy. It is not clear how large is the problem. Other countries have a limited number of banks. Bank failures has been a ongoing problem. Large banks have significant economies of scale. The problem throughout our history is determining how to best regulate banks and how centralized should banking be. Unfortunately , with a limited number of large institutions, there is greater risk of regulators being co-opted by their industry.
The authors do not have good solutions for the "too big to fail" problem. The continuation of privatized profits and socialized risks has not been solved. In fact, current new regulation since the financial crisis only perpetuates or institutionalizes the too big to fail issue. There has been nothing done to reduce the size of large institutions or have them bare the costs of their size. Any increases in regulation can be spread over a large asset basis in ways that cannot be done with smaller institutions. The small will get weaker and the big will get stronger under a protective umbrella.
The financial history of the US is in a state of flux, but it not clear that we will be moving to more decentralized and competitive banking environment.
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