By: Michelle Patana
If it's really the straw that broke the camel's back, how many straws do megabanks have to drop before action will be taken? A new analysis into the manipulation of the London Interbank Offered Rate urges lawmakers to take a more serious view about breaking up the nation's largest institutions as a strategy for protecting Americans and smaller institutions from long-lasting repercussions.
The study, conducted by the Bard College Levy Economics Institute, calls on the government to not only recognize the structural changes that need to be made to curb abuses, but to stop pointing fingers solely at the Bank of England and hold U.S. banks accountable for their share in the scandal. The report cited JPMorgan's multi-billion dollar trading loss as evidence that lawmakers are too quick to point fingers at individuals, rather than assessing the structural problems of the country's behemoth financial institutions.
"The rotten apples have been removed without anyone noticing that it is the barrel that is the cause of the problem," wrote Jan Kregel, the Levy Institute's senior scholar.
Several prominent industry experts, ranging from well-known bank consultants and lawmakers to the former leaders and employees of national financial institutions, have called for the dissolution of the country's largest banks and noted that allowing them to continue these abuses is unsustainable for a recovering economy. Many large banks that are involved in large-scale trades and activity are lowering their exposure by turning their backs on those that need access to financing the most: American families and businesses.
The Federal Reserve and economists agree that in order for the U.S. economy to recover fully, American businesses need more financing to grow, consumers must be able to achieve their homeownership dreams and young adults must obtain financing for education-related costs. While community banks and credit unions have stepped up to the plate to help Americans, large banks continue to use capital for risky trades and international investment vehicles.
It has not gone unnoticed by lawmakers that the institutions which have undergone costly litigation in recent years are nearly all megabanks that have the largest share in the market. Community bank and credit union programs have remained largely free from scrutiny due to their adherence to smart practices that they put in place long before they were mandated by Dodd-Frank or the Consumer Financial Protection Bureau. Despite this recognition, it is unclear whether large institutions will face the consequences for their actions.