By: Michelle Patana
The question of whether the nation's largest financial institutions are "too-big-to-fail" was central to regulators' discussions when mapping out new legislation following the economic collapse. Despite theprovisions of theDodd-Frank Actand recent laws imposed by the Consumer Financial Protection Bureau, this inquiry is as heated and controversial today as it was five years ago when the Great Recession hit. A string of lawsuits and multibillion-dollar settlements that involved questionable practices and unlawful big banking strategies have placed a renewed focus on whether it's time to break up big banks, and a new examination of large institutions is expected to provide more clarity.
The Government Accountability Office has agreed to conduct a study that will explore whether the largest banks enjoy favorable pricing and debt treatment due to their size, expect to be bailed out again in light of another economic collapse and would have too large an impact on the economy and markets in the event of their demise. The study will focus on those institutions with $500 billion or more in consolidated assets. Many lawmakers and groups are in favor of the study and hope it will provide more objectivity into how impactful large banks really are on the national and global economy. The Independent Community Bankers of America released a statement showing their support for the study and hopes it will serve as a wake-up call to lawmakers that have been reticent to take action against big banks.
"ICBA is encouraged that Congress and the GAO are working together to study and address market distortions government support for the largest and riskiest financial institutions may cause," said ICBA president and CEO Cam Fine. "Gaining much-needed information on the probable market distortion and risks that the largest mega-financial institutions pose by benefiting from government intervention will help taxpayers better understand how these institutions affect our financial system and economy."
Will the study results encourage action?
Although many entities have expressed their support for an objective analysis, others are pessimistic about whether any negative results will yield action against big banks. A recent report in Investor Place argued that big banks have actually gained a heavier concentration of assets since the Great Recession. Despite lawsuits, settlements and underperforming in a number of sectors, stock prices for the nation's largest banks remain elevated. As a result, some analysts argue that until the financial system begins to buckle under the weight of large institutions, there is no tangible incentive to breakthem up.