Too big to fail.
Those four words loomed large in 2008, as a crisis in the banking world threatened the global economy. Fears that the failure of large financial institutions would undermine the entire economic system led Congress to step in, passing a $700 billion bailout package.
In the wake of the bailout, Congress passed new financial regulations aimed at reducing the chances that it would happen again. But there's widespread concern that the nation's largest banks are still too big to fail — and that taxpayer money would have to come to the rescue in the event of another crisis.
Some argue that the way to solve the problem is to break up those banks — to put limits on the size of their operations.
But others say the new regulations have made the system safer, and that big banks are necessary to serve the needs of a global economy.
Four experts recently faced off on this question in an Oxford-style debate for the Intelligence Squared U.S. series. They argued two against two on the motion: "Break Up The Big Banks."
Before the debate, the audience at New York City's Kaufman Center voted 37 percent in favor of the motion and 19 percent against. Forty-four percent were undecided. After the debate, 49 percent supported breaking up big banks — an increase of 12 percentage points — and 39 percent opposed — an increase of 20 points. That made the side arguing against breaking up the banks the winners of the debate.
Those debating were:
FOR THE MOTION
Richard W. Fisher is the president and CEO of the Federal Reserve Bank of Dallas. In this role, Fisher serves as a member of the Federal Open Market Committee, the Federal Reserve's principal monetary policymaking group. He is a former vice chairman of Kissinger McLarty Associates, a strategic advisory firm chaired by former Secretary of State Henry Kissinger. Fisher began his career at the private bank of Brown Brothers Harriman & Co., and later became assistant to the secretary of the Treasury during the Carter administration, working on issues related to the dollar crisis of 1978-79. He returned to Brown Brothers to found their Texas operations in Dallas, and, in 1987, created Fisher Capital Management and a separate funds-management firm, Fisher Ewing Partners. From 1997 to 2001, Fisher was the deputy U.S. trade representative with the rank of ambassador.
Simon Johnson is the Ronald A. Kurtz professor of entrepreneurship at MIT's Sloan School of Management. He is a senior fellow at the Peterson Institute for International Economics, a co-founder of BaselineScenario.com, a member of the Congressional Budget Office's Panel of Economic Advisers, and a member of the FDIC's Systemic Resolution Advisory Committee. He is also a member of the private-sector Systemic Risk Council, founded and chaired by Sheila Bair. He is a regular contributor to The New York Times' Economix, Project Syndicate and Bloomberg. He is also a contributing business editor at The Huffington Post. Johnson is the co-author of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown (2011) and White House Burning: Our National Debt and Why It Matters to You (2013). From April 2007 through August 2008, Johnson was the chief economist at the International Monetary Fund.
AGAINST THE MOTION
Douglas Elliott is a fellow in economic studies at the Brookings Institution. A financial institutions investment banker for two decades, principally at J.P. Morgan, he was the founder and principal researcher for the Center on Federal Financial Institutions, a think tank devoted to the analysis of federal lending and insurance activities. At Brookings, he focuses primarily on financial institutions and markets and their regulation. Elliott has researched financial institutions or worked directly with them as clients in a range of capacities, including as an equities analyst, a credit analyst, a mergers and acquisitions specialist, a relationship officer and a specialist in securitizations. His work has encompassed banks, insurers, funds management firms and other financial institutions. In addition to 14 years at J.P. Morgan, Elliott worked as an investment banker with Sanford Bernstein, Sandler O'Neill and ABN AMRO.
Paul Saltzman is the president of The Clearing House Association and executive vice president and general counsel of The Clearing House Payments Co., the oldest and largest private-sector payments operator in the U.S. Under his stewardship, the association has emerged as the advocacy leader for the largest commercial banks in the U.S. and has been recognized for its development of a research and data-driven approach to legislative and regulatory advocacy. Saltzman has 25 years of experience in financial services, industry association management, and emerging technology development. He served as the executive vice president and general counsel for the Bond Market Association (now SIFMA), the managing director and general counsel of Ellington Management Group, and executive vice president and chief operating officer of eSpeed Inc. Formerly, he was an in-house counsel for Greenwich Capital Markets and Kidder Peabody and Co., as well as an attorney specializing in structured finance at Skadden, Arps, Slate, Meagher & Flom LLP.