Big Banks Still in Charge
Too Big to Fail is Not Gone
Ever since the country has begun to work towards bouncing back from the worst financial crisis since the Great Depression, Americans have keep a leery eye on big banks – and for good reason.
For many, the concept that the nation's biggest banks could still be “too big to fail” has been enough to cause plenty of anxiety and has even sparked a run towards alternative forms of decentralized currency. And now, with new data, it appears as if big banks are indeed still in charge.
As far as Moody’s is concerned, American banks have seen a recovery in ways that many didn’t think was possible in such a short period of time. In somewhat of a surprising move, the credit agency raised its status on the country’s financial institutions to “stable.”
Moody’s hasn’t taken this stance on big banks since 2008, right before America’s financial crisis went into full swing. Moody’s expects bank performance to improve even more over the course of the next 12-18 months, due in large part to the fact that interest rates have been kept extremely low as a result of the Fed’s actions to help push the economy in a forward direction.
But not everyone is happy about this, and some feel as if the current climate isn’t nearly as positive as Moody’s is trying to convey.
Bart Chilton, CFTC Commissioner, believes that not enough is being done to hasten the writing and implementation of the Dodd-Frank financial reform, proposed specifically to keep banks from speculating when they are backed by taxpayers’ money and to prevent another taxpayer bailout. Written in 2010, the reform has yet to be completed and may not even see proper implementation until 2014.
Wall Street, as one might assume, isn’t exactly thrilled over the plans for this reform and has been lobbying for fewer restrictions on banks in order to keep the economy moving. After all, the market has been seeing a great deal of success lately, and fears that a reform act could curtail this have many investors up in arms.
Because the reform has taken so long to complete, banks and lobbyists have had ample time to determine how to best assess the situation and come out as little-affected as possible.
The main aspect of Dodd-Frank that aims to keep taxpayers safe from big bank speculating is called the Volcker Rule, named after former chairmen of the Fed Paul A. Volcker. Volcker is working on formulating a foundation called the Volcker Alliance, which he hopes will help to at least partially dispel the lack of faith that many Americans have in government and help people further understand how government works at the local, state, and federal levels.
The former chairman is quick to point out that the Alliance is not one based upon the fueling and brainstorming of new ideas, but rather a catalyst for more immediate change in the way government is viewed. For a man who was able to reign in inflation, the new venture serves as a logical next step.
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Looking Towards the Future
The issues that Americans have with big banks are not likely to go away anytime soon. After all, a tumultuous past has made it next to impossible for many Americans to fully trust big banks, and the possibility that the Dodd-Frank reform could end up being underwhelming is enough to raise concerns about where big banks are likely to stand in the future.
With Moody’s finally shifting its views towards big banks and raising its rating to “stable,” however, some are becoming more and more at ease. For the most part, banks have spent the past 5 or so years working on their balance sheets and restoring capital – no easy task, especially on the heels of a financial crisis.
As interest rates continue to remain low, it shouldn’t come as a shock to anyone if performance continues to improve.
Nevertheless, the fears of a “dead in the water” Dodd-Frank reform are enough to cause anxiety in the country’s economic environment. Until the reform finally is finished, it’s unclear what type of effect it will truly have on big banks and whether or not it will keep taxpayers protected in the way it is supposed to.
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