News Column

Megabanks: Still Privileged, Still in Trouble

January 29, 2013

Isaac Cohen -- HispanicBusiness

US Capitol with money

The president of the Federal Reserve Bank of Dallas, Richard Fisher, has spoken again about the need to regulate "too big to fail" megabanks "before it is too late."

In remarks delivered in Washington, D.C., on Jan. 16, Fisher recalled that he and the research staff of the Dallas Federal Reserve have dealt with this critical issue since July 2009. The focus on these megabanks is based on the concern that "as a result of their privileged status" because they are "too big to fail," they interfere with the transmission of monetary policy and inhibit the advancement of economic prosperity.

Furthermore, "thought of as islands of safety in a sea of risk, they became the enablers of a financial tsunami." They were the "epicenter of the 2007-09 financial crisis," he added.

Fisher defines these megabanks as "financial firms whose owners, managers and customers believe themselves to be exempt from the processes of bankruptcy and creative destruction."

The financial reform approved by the U.S. Congress after the financial crisis, according to Fisher, has not done enough "to corral" these megabanks and this legislation has "made things worse."

One indicator cited by Fisher to illustrate this point has to do with banking concentration in the U.S. In 2012, 12 banks accounted for only 0.2 percent of the approximately 5,600 commercial banks, but these "behemoths" held almost 70 percent of industry assets.

Fisher's remarks can be read on the Federal Reserve Bank of Dallas website.

Isaac Cohen is an international analyst and consultant, a commentator on economic and financial issues for CNN en Español TV and radio, and a former director, UNECLAC Washington Office.

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