Big banks are certainly big. The 15 biggest banks account for roughly 80 percent of the total assets of all publicly listed banks. The four largest, all trillion dollar banks, alone account for 50 percent of the assets. It is also certainly true that many big banks were bailed out by the government. Most importantly, it is true that no big bank should ever again be treated as too-big-to-fail. Regulations are now being implemented to ensure, we hope, that the inequitable dividing line between big and small is at long last eliminated.
But whether banks are currently or are becoming too big to jail should not be an issue. It is individuals, not institutions, that break the law. And it is the individuals who engage in wrongdoing, whether at big or small banks, that should be the focus of attention. No one working in the banking industry should be above the law—period. It is not the size of the bank per se that causes problems, but rather the individuals within a bank—whatever its size—that is the source of the problem. The message to be sent to everyone working in banks, or for that matter working in any firm, is that breaking the law will lead to punishment, including potential imprisonment. No exceptions should be made for anyone, and certainly not bankers working in big banks. This would simply be sending a message to those individuals with a proclivity for wrongdoing to migrate to big banks. Just as efforts to eliminate "too big to fail" are being undertaken, every effort should be made to ensure there is no dividing line between "too big to jail" and "too small to let go" in the banking industry. There should be no safe haven for wrongdoers at any bank, big or small.
To ensure that "too big to jail" does not exist is simple; it only requires that the law be enforced on an equal basis across banks of all sizes. Yet, we now learn from Attorney General Eric Holder that he is "… concerned that the size of some … institutions becomes so large that it does become difficult … to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy," according to The Hill. This is truly disturbing and reinforces the view of those who believe big banks are bad banks. But what is the source of the "indications" and, more importantly, where is the evidence that a prosecution or criminal charge will have the "negative impact" of the magnitude indicated?
About James Barth Co-author of 'Guardians of Finance: Making Regulators Work for Us'
Hester Peirce Senior Research Fellow at the Mercatus Center
Wallace Turbeville Senior Fellow at Demos