Tuesday, March 6, 2018

Removing "Too Big to Fail" Bank Legislation

The Senate is considering a bill that would reduce legislation on big banks implemented after the last major crisis. These rules are designed to protect tax payers and the economy from future risky investments that could have a detrimental impact on the larger economy. There is some debate as what they should do.

First, let me state there are fundamentally different risks posed by the size and breadth of the bank. Smaller banks cannot impact the economy in a way that would pose serious risk and therefore should not have the same rules as larger banks.

Likewise, it is important to make the argument that large banks made risky, and sometimes selfish, decisions to increase their wealth without adequately assessing the risks to themselves as well as to others. These rules have a purpose and should not be haphazardly thrown out.

We are then led to what the rules should really look like. My suggestion is to adjust the rules to improve commerce while still providing enough checks and balances to ensure banks are transparent about their activities and punished when they "cheat" the system in some way.

Personally, I would like the penalties and punishments for criminal negligence and behavior to go up. Too many white collar criminals are "gaming" the system because to them it is just another expense in terms of fines and fees. They are often left to do what they want when they want as long as the institution will make more money than the fines.

Therefore, it would be wise to streamline some of the more cumbersome aspects of the regulations to ensure banks function well for the benefit of everyone but require them to be much more transparent about their behavior. Furthermore, fines on the institution and criminal punishments are raised to remove the incentives of "business as usual". I think there is a balance that can be made between encourage good commerce, improving trust in the institutions, and making sure there are tools to punish "bad actors".

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