“My own view is that the problem of too big to fail is really about complexity, not size, and thus “break-up” proposals should focus on simplifying the megabanks so that they can be easily resolved in bankruptcy or the FDIC’s resolution process without resort to taxpayer support. For instance, even though Wells Fargo has assets of $1.3 trillion, I do not worry about the government’s ability to resolve it because it follows a basic business model of taking deposits and making loans, and its operations are almost exclusively “exclusively in the United States. If Wells did get into trouble (which I don’t expect), it would not be a huge challenge to place its bad loans into a receivership, where losses would be absorbed by its shareholders and unsecured creditors, and transfer its deposits and healthy loans into a “good bank” that could be sold off or recapitalized with new private-sector investment.

The problem is the complexity that comes with banking organizations trying to be involved in areas as varied as lending, payment processing, asset management, investment banking, brokerage, securities and derivatives market-making, and insurance. Since the repeal of Glass-Steagall, banking organizations have been allowed to enter a wide range of activities that are more volatile, risky, and complex than traditional banking. In addition, as megabanks have grown, both internationally and domestically, they have created thousands of different legal entities, frequently to evade regulatory or tax requirements. This confusing tangle of legal entities operates as a kind of “poison pill” to breaking them up, even though these behemoths could operate more efficiently and safely if they were divided into their component parts.

Excerpt From: Bair, Sheila. “Bull by the Horns.” Free Press. iBooks.

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