How to Cut Megabanks Down to Size

The NY Times’Gretchen Morgenson writes: This is nonsense, of course. Whatever regulators and lawmakers say, the Dodd-Frank financial overhaul lacks any guarantee that taxpayers won’t have to come to the rescue again.  So it was refreshing to hear a member of the Federal Reserve Board debunk the bailouts-are-gone theory last week.

The official was Richard W. Fisher, the president of the Federal Reserve Bank of Dallas and a longstanding truth-teller about too-big-to-fail banks. On Wednesday, in a speech in Washington, Mr. Fisher laid out a compelling proposal for shrinking financial giants in order to protect taxpayers. He suggested that megabanks be chopped into pieces, so that no one of them could endanger the financial system if it ran into trouble.

That may sound like a return to the Glass-Steagall Act, the Depression-era law that separated investment banking and commercial banking until it was dismantled in 1999. But Mr. Fisher’s plan is more sophisticated than Glass-Steagall, in that it recognizes how complex big financial institutions have become. Glass-Steagall concerned only old-school banking businesses, like making loans, and Wall Street businesses, like trading stocks. Today’s financial behemoths are in so many different businesses that a top-to-bottom restructuring is required….

Read all about it at http://www.nytimes.com/2013/01/20/business/a-fed-voice-asking-to-cut-megabanks-down-to-size.html?ref=business&_r=0