|
Dear John,
For years, we’ve been playing whack-a-mole with banks. We regulate over here, and they shift risks onto the public over there.
After the 2008 crash, the Dodd-Frank Act was passed to rein in banks. It was a big deal and included numerous important reforms. Then, during the Trump era, Congress weakened key provisions, shifting risk once again, and it was exploited by the same executives who lobbied for removing the guidelines.
Now, with the failures of Silicon Valley Bank and Signature Bank, the predictable outcomes have arrived. The banks did not have the necessary cash on hand when it was needed and the public was forced to step in with millions of taxpayer money to bail them out.
A run on these banks could have easily become a contagion and resulted in widespread financial disaster. It’s exactly this kind of economic disaster Dodd-Frank was designed to prevent.
Fortunately, Senator Elizabeth Warren and Representative Katie Porter have introduced the Secure Viable Banking Act to restore the rules on midsize banks. Send a message to Congress urging your senators and representative to sign on as co-sponsors of this crucial legislation.
Whenever the nation goes through a crisis or a near-crisis like this, there’s an opportunity to rethink fundamentals.
Why are banks allowed to have shareholders at all? Doing so only serves to privatize the gains, and then, when a bank goes too far in maximizing shareholder returns, socialize the losses.
There’s a difference between insuring depositors and insuring banks.
The fact is: The goal of maximizing shareholder returns is fundamentally at odds with the goal of protecting depositors.
People who deposit money in a bank should not have to exercise care in selecting which bank they deal with for fear that their deposits might vanish overnight. So it’s appropriate for the Fed to bail out depositors.
But executives of banks need incentives to be more careful. Without this, their major incentive will continue to be to make as much money as possible for their shareholders (and thereby for themselves), even if they put their depositors’ money at unreasonable risk.
The short-term fix is to require smaller banks to follow the same rules as big banks under the Dodd-Frank Act -- maintaining a minimum share of capital on hand to cover depositors and be able to pass stress tests.
Why haven’t they been doing that already? Because the rules requiring midsized banks to do so were gutted during the Trump administration. The Secure Viable Banking Act is a necessary return to clearly needed protections, including stress tests and minimum cash on hand requirements. Sign and send your message to Congress now.
To be clear, we can do even better. The Glass-Steagall Act, law of the land until 1999, prohibited banks from making profits off of the deposits entrusted to them.
I say, bring it back!
The bottom line is: If midsized banks are going to play recklessly with depositors’ money for the sole purpose of enriching themselves and their shareholders, they must be held to very strict standards.
Otherwise taxpayers will be left holding the bag, while fat-cat bank executives rake in the profits.
Thank you for doing your part to restore stability and accountability to the nation’s banking system by contacting Congress today.
Robert Reich
Inequality Media Civic Action
|
