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Do big banks put America at risk of financial failure? At an AEI event on Wednesday, a panel of financial experts scrutinized the idea of too-big-to-fail banks. Thomas Koenig of the Federal Deposit Insurance Corporation argued that the complex, intermingled structure of the US financial system puts the whole framework at risk. He pointed out that government safety nets and bad regulation allow banks to make high-risk decisions that could easily spin out of control.
In an effort to avoid another Great Recession, former senator Ted Kaufman (D-DE) called for separation between commercial and investment banks, recommending a return to the Glass-Steagall Act. He said that the president and Congress must pass simple, effective laws that regulators can use as guidelines to keep banks "in their lanes."
AEI's Peter Wallison raised the issue of uncertainty and how that affects the assessment of regulators. He argued that existing data does not confirm that the size of the bank accounts for any instability in the markets. Consequently, he concluded that Congress should support competition by allowing banks to go bankrupt instead of bailing them out.
Big banks were once regarded as the creatures of unfettered capitalism. But after Washington bailed the big guys out, and after a string of studies suggesting that those banks are really the creatures of implicit bailouts, even the most laissez-faire individuals need to ask whether the big banks are too big.
Do big banks create instability, increase the likelihood of bailouts, and increase demand for regulations? Would they be so big without government support? And, finally, if they are too big, what should be done?
Please join us for a discussion of the genesis and consequences of America’s largest banks, and solutions for returning them to market-oriented fundamentals.
If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.
Registration and Lunch
Thomas Hoenig, Federal Deposit Insurance Corporation
Edward E. “Ted” Kaufman, Former Senator (D-DE)
Peter J. Wallison, AEI
Timothy P. Carney, AEI
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Timothy P. Carney helps direct AEI’s Culture of Competition Project, which examines barriers to competition in all areas of American life, from the economy to the world of ideas. Carney has over a decade of experience as a journalist covering the intersection of politics and economics. His work at AEI focuses on how to reinvigorate a competitive culture in America in which all can reap the benefits of a fair economy. Carney is the author of two books: “The Big Ripoff: How Big Business and Big Government Steal Your Money” (John Wiley & Sons, 2006) and “Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses” (Regnery Publishing, 2009).
Thomas Hoenig is the vice chairman of the Federal Deposit Insurance Corporation. He previously served as CEO of the Federal Reserve Bank in Kansas City, MO, and was a member of the Federal Reserve System’s Federal Open Market Committee from 1991 to 2011. As CEO, Hoenig was notably outspoken about the regulation of the financial industry and role of the monetary policy during the 2007–08 crisis. In his 2012 paper titled “Restructuring the Banking System to Improve Safety and Soundness,” Hoenig called for separating insured commercial banks from nonbanking functions, such as trading securities or making markets in securities or derivatives. Hoenig has lectured on the US banking and regulatory system for the People’s Bank of China and served as instructor of economics at the University of Missouri-Kansas City.
Edward E. “Ted” Kaufman is a former US senator from Delaware, who served from 2009 to 2010 after being appointed by then-senator Joe Biden. During his time in office, he was deeply involved in the Dodd-Frank Wall Street Reform and Consumer Protection Act, cosponsoring an amendment to limit bank size. He served as Senate chief of staff for Joe Biden from 1973 to 1994. He also served as a member of the Broadcasting Board of Governors. Presently, he is a visiting professor at the Duke University Law School, where he teaches courses on US Congress.
Peter J. Wallison, a codirector of AEI's program on financial policy studies, researches banking, insurance, and securities regulation. As general counsel of the US Department of the Treasury, he had a significant role in the development of the Reagan administration's proposals for the deregulation of the financial services industry. He also served as White House counsel to former president Ronald Reagan and is the author of “Ronald Reagan: The Power of Conviction and the Success of His Presidency” (Westview Press, 2002). His other books include “Bad History, Worse Policy: How a False Narrative about the Financial Crisis Led to the Dodd-Frank Act” (AEI Press, 2013), “Competitive Equity: A Better Way to Organize Mutual Funds” (AEI Press, 2007), “Privatizing Fannie Mae, Freddie Mac, and the Federal Home Loan Banks” (AEI Press, 2004), “The GAAP Gap: Corporate Disclosure in the Internet Age” (AEI Press, 2000), and “Optional Federal Chartering and Regulation of Insurance Companies” (AEI Press, 2000).