from The Atlantic
Nearly a decade ago, as the entire financial system was collapsing, the bank where I worked, Citibank, was deemed too big to fail. Many other banks were also in the same situation, and also bailed out and allowed to live. And live on they do. Today Citibank, and the other banks, are just as big.
This is causing some policy makers to worry. Neel Kashkari, who helped structure the bailout, is now president of the Federal Reserve Bank of Minneapolis. On Tuesday he gave a speech, stating that those big banks pose an “ongoing risk to our economy.”
It was an impressive speech and surprising given his past as both a Goldman Sachs banker and as a “free-market” Republican. It also angered many bankers and politicians, because he voiced a secret of Wall Street: Despite Dodd-Frank, despite claims to the contrary by some politicians, “the largest banks are still too big to fail (TBTF).”
One of his proposed solutions—breaking up the banks—puts him in the same company as Bernie Sanders and a handful of other politicians. Doing so would go some of the way toward improving bank governance: If the government turns Citibank into ten smaller Citibanks, they will probably be better managed, since too big to fail is also too big to manage. Additionally, some might start doing things differently from the rest, even innovating.