Tag: too big to fail
Sanders’s Meeting With New York Daily News Didn’t Go So Well

Sanders’s Meeting With New York Daily News Didn’t Go So Well

Maybe Bernie Sanders wasn’t ready for the detail-heavy lines of questioning lobbed at him by the New York Daily News‘s editorial board this morning. At the very least, he didn’t sound ready.

Sanders, who has brought his message of economic justice and tougher financial regulations to the forefront of the Democratic nominating process, appeared unprepared to explain the specifics of his plan to dismantle the nation’s largest, riskiest banks as president.

As the most outspoken of the two Democratic candidates on the need to dismantle banks that are “Too Big To Fail,” Sanders couldn’t articulate how, in his first 100 days, he would address these institutions:

Daily News: Okay. Well, let’s assume that you’re correct on that point. How do you go about doing it?

Sanders: How you go about doing it is having legislation passed, or giving the authority to the secretary of treasury to determine, under Dodd-Frank, that these banks are a danger to the economy over the problem of too-big-to-fail.

Daily News: But do you think that the Fed, now, has that authority?

Sanders: Well, I don’t know if the Fed has it. But I think the administration can have it.

Daily News: How? How does a President turn to JPMorgan Chase, or have the Treasury turn to any of those banks and say, “Now you must do X, Y and Z?”

Sanders: Well, you do have authority under the Dodd-Frank legislation to do that, make that determination.

Daily News: You do, just by Federal Reserve fiat, you do?

Sanders: Yeah. Well, I believe you do.

The uncertainty in Sanders’s response was red meat for the punditocracy: The Atlantic wrote, “Even on bread-and-butter matters like breaking up the big banks, the Democratic presidential hopeful came across as tentative, unprepared, or unaware.” On Mediaite, Sanders was described as in “way, way over his head.” The Washington Postcalled it a “disaster.” And things didn’t get better as the interview went on:

Daily News: Okay. You would then leave it to JPMorgan Chase or the others to figure out how to break it, themselves up. I’m not quite…

Sanders: You would determine is that, if a bank is too big to fail, it is too big to exist. And then you have the secretary of treasury and some people who know a lot about this, making that determination. If the determination is that Goldman Sachs or JPMorgan Chase is too big to fail, yes, they will be broken up.

Daily News: Okay. You saw, I guess, what happened with Metropolitan Life. There was an attempt to bring them under the financial regulatory scheme, and the court said no. And what does that presage for your program?

Sanders: It’s something I have not studied, honestly, the legal implications of that.

Given the central role that breaking up banks plays in his platform, until this morning it seemed highly unlikely that Sanders wouldn’t have some cursory knowledge of relevant legal precedent or executive authority. But the interview showed a level of unpreparedness that’s surprising, especially this late in the game.

Sanders’s bungled answer is unlikely to hurt him much in the Wisconsin primaries, where he has a slight lead over Hillary Clinton as voters head to the polls today. But reactions may be different in New York, whose primary is on April 19th.

Too Big To Punish

Too Big To Punish

A few months ago, in a press conference about the felony conviction of Credit Suisse, Attorney General Eric Holder said, “This case shows that no financial institution, no matter its size or global reach, is above the law.”

Yet, earlier this month, the Obama administration announced its proposal to waive some of the possible sanctions against Credit Suisse. The little-noticed waiver, which was outlined in the Federal Register, comes amid criticism that the Obama administration has gone too easy on major financial institutions that break the law.

In its announcement outlining the waiver, the Department of Labor notes that Credit Suisse “operated an illegal cross-border banking business that knowingly and willfully aided and assisted thousands of U.S. clients in opening and maintaining undeclared accounts” and in “using sham entities” to hide money.

Under existing Department of Labor rules, the conviction could prevent Credit Suisse from being designated a Qualified Professional Asset Manager. That designation exempts firms from other federal laws, giving them the special status required to do business with many pension funds. The Obama administration’s is proposing to waive those anti-criminal sanctions against Credit Suisse, thereby allowing Credit Suisse to get the QPAM designation needed to continue its pension business.

The waiver proposal follows a larger pattern. In June, Bloomberg News reported that federal prosecutors have successfully pushed U.S. government agencies to allow Credit Suisse to avoid many regulatory sanctions that could have accompanied its criminal conviction.

“The New York Fed said last month that the bank can continue handling government securities as a so-called primary dealer,” reported the news service. “The SEC let the firm continue as an investment advisor while the agency considers a permanent waiver.”

Pensions and Investments magazine has reported that despite Department of Labor assurances of tough enforcement of its sanctions against convicted financial firms, the agency has “granted waivers for all 23 firms seeking individual waivers since 1997.”

Critics say that by using such maneuvers, the Obama administration is effectively cementing a “too big to punish” doctrine. That criticism intensified in 2012 and 2013, when top Justice Department officials defended the administration’s reluctance to prosecute banks by publicly declaring that the government considers the potential economic impact of such prosecutions. Those declarations echoed an earlier memo by Holder, which stated that officials could take into account “collateral consequences” when deciding whether to prosecute major corporations.

Why is the Obama administration reducing sanctions on Credit Suisse? The administration says it is a decision based on pragmatism, not favoritism.

The Federal Register announcement, for instance, notes that Credit Suisse has assets of nearly $1 trillion, and argues that if the anti-criminal provisions were enforced, the bank would lose its ability to offer investment products to pension funds. The announcement also argues that the Credit Suisse entities that specifically conduct pension business “are independent of” and “not influenced by Credit Suisse AG’s management and business activities.”

What the administration did not mention, of course, is that according to data compiled by the Sunlight Foundation, employees of Credit Suisse have given President Obama’s campaigns more than $376,000. That’s particularly relevant in light of an April study of SEC data from London Business School professor Maria M. Correia. That analysis showed that “politically connected firms are on average less likely to be involved in … enforcement action and face lower penalties if they are prosecuted.”

Whatever the reason for the proposed waiver, one thing is for sure: The move contradicts the claim that “no financial institution, no matter its size or global reach, is above the law.” Indeed, the Obama administration’s waiver proposal suggests exactly the opposite.

David Sirota is a senior writer at the International Business Times and the best-selling author of the books Hostile Takeover, The Uprising, and Back to Our Future. Email him at ds@davidsirota.com, follow him on Twitter @davidsirota or visit his website at www.davidsirota.com.

AFP Photo/Fabrice Coffrini

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U.S. Regulator Says Big Banks Still Threaten Economy

U.S. Regulator Says Big Banks Still Threaten Economy

New York (AFP) – U.S. regulators warned Tuesday that 11 giant banks have unrealistic contingency plans in the event of bankruptcy and warned that if they fail they could plunge the world into a new financial crisis.

The Federal Reserve and Federal Deposit Insurance Corporation said the 11 titans, popularly known as “those too big to fail,” must make better plans to restructure their firms if they get into trouble.

FDIC Vice Chairman Thomas Hoenig said they had failed to show “how, in failure, any one of these firms could overcome obstacles to entering bankruptcy without precipitating a financial crisis.”

“The plans provide no credible or clear path through bankruptcy that doesn’t require unrealistic assumptions and direct or indirect public support,” Hoenig warned.

The group comprises JPMorgan Chase, Goldman Sachs, Deutsche Bank, Bank of America, Bank of New York Mellon, Barclays, Citigroup, Credit Suisse, Morgan Stanley, State Street and UBS.

Wayne Abernathy, executive vice president at the American Bankers Association, said the banks will now be able to rework their plans based on the FDIC’s criticism.

Up until this point, the industry has not known what regulators wanted, he complained, rejecting the calls from some expert critics and U.S. lawmakers for large banks to be broken up.

“This isn’t a question of whether a bank is too big,” Abernathy said. “This is a question of a tool that needs to be refined.”

Under the Dodd-Frank Act enacted in response to the 2008 financial crisis, the banks must demonstrate a strategy “for rapid and orderly resolution” in the event of bankruptcy or major financial distress.

But the submissions by the financial giants fail to adequately prepare a so-called “living will” that could avert disaster, FDIC said.

The rule was intended to address the problem of having financial institutions that are “too big to fail” because their demise could wreak havoc on the broader economy.

Tuesday’s announcement marks a second rejection of the banks’ planning by regulators. U.S. financial agencies found fault with the original bank submissions in April 2013.

Regulators have noted “some improvements” since the first round, but still point to huge flaws. The banks have until July 2015 to make “significant progress” to address the shortcomings identified.

At a recent congressional; hearing, Senator Elizabeth Warren pointedly questioned Fed Chair Janet Yellen on the adequacy of the industry’s contingency plans.

She suggested some of the banks should be broken up and noted that JPMorgan is far bigger than Lehman Brothers was when it failed in the early stages of of the 2008 financial crisis.

Hoenig warned that banks today are “generally larger, more complicated and more interconnected” than they were prior to 2008.

The large banks are also generally “excessively leveraged” compared with the banking industry as a whole, he added.

The regulators listed a series of actions expected of banks in their next submissions, such as simplifying their legal structure and amending financial contracts with counterparties in an insolvency.

Abernathy said the suggested measures were possible, but warned against indiscriminate moves to break up the financial behemoths.

Replacing the 11 banks with 40 smaller banks would “reduce diversification” and the banks’ “ability to handle the transactions their customers need,” he said. “I think that’s economic chaos.”

AFP Photo / Stan Honda