What to do about big banks?

Giant Wall Street banks continue to threaten the well-being of millions of Americans, but what to do?

Bernie Sanders says break them up and resurrect the Glass-Steagall Act that once separated investment banking from commercial banking.


Hillary Clinton says charge them a bit more and oversee them more carefully.

Most Republicans say don't worry.


Clearly, there's reason to worry. Back in 2000, before they almost ruined the economy and had to be bailed out, the five biggest banks on Wall Street held about 25 percent of the nation's banking assets. Now they hold more than 45 percent.

Their huge size fuels further growth because of the near certainty they'll be bailed out if they get into trouble again.

This hidden federal guarantee against failure is estimated be worth more than $80 billion a year to the big banks. In effect, it's a subsidy from the rest of us to the bankers. And they'll almost certainly get into trouble again if nothing dramatic is done to stop them.

Consider their behavior since they were bailed out.

In 2012, JPMorgan Chase, the largest bank on Wall Street, lost $6.2 billion betting on credit default swaps tied to corporate debt -- and then publicly lied about the losses. It later came out that the bank paid illegal bribes to get the business in the first place.

In May, the Justice Department announced a settlement of the biggest criminal price-fixing conspiracy in modern history, in which the biggest banks manipulated the $5.3 trillion-a-day currency market in a "brazen display of collusion," according to Attorney General Loretta Lynch.

Wall Street is on the road to another crisis.

This would take a huge toll. Although the banks have repaid the billions we lent them in 2008, many Americans are still living with the collateral damage from what occurred -- lost jobs, savings and homes.


Rather than prevent this by breaking up the big banks and resurrecting Glass-Steagall, Hillary Clinton advocates a more cautious approach. She wants to impose extra fees on the banks, with the amounts based not on a bank's size but on how much it depends on short-term funding (such as fast-moving capital markets), which is a way of assessing riskiness.

Ms. Clinton would also give bank regulators more power than they have under the Dodd-Frank Act (passed in the wake of the last banking crisis) to break up any particular bank that they consider too risky. And she wants more oversight of so-called "shadow" banks -- pools of money (like money market mutual funds, hedge funds and insurance funds) that act like banks.

All this makes a great deal of sense.

In a world where the giant Wall Street banks didn't have huge political power, these measures might be quite enough.

But, if you hadn't noticed, Wall Street's investment bankers, key traders, top executives, and hedge-fund and private-equity managers wield extraordinary power. They're major sources of campaign contributions to both parties.

In addition, a lucrative revolving door connects the Street to Washington. Treasury secretaries and their staffs move nimbly from and to the Street, regardless of who's in the Oval Office.


Key members of Congress, especially those involved with enacting financial laws or overseeing financial regulators, have fat paychecks waiting for them on Wall Street when they retire.

Which helps explain why no Wall Street executive has been indicted for the fraudulent behavior that led up to the 2008 crash. Or for the criminal price-fixing scheme settled in May. Or for other excesses since then. And why even the fines imposed on the banks have been only a fraction of the banks' potential gains. And also why Dodd-Frank has been watered down into vapidity.

For example, Dodd-Frank requires major banks to prepare "living wills" describing how they'd unwind their operations if they get into serious trouble.

But so far, no big bank has come up with one that passes muster. Federal investigators have found them all "unrealistic."

That's not surprising, because if they were realistic, the banks would effectively lose their hidden "too big to fail" subsidies. But there's no penalty for failure to come up with a realistic living will.

Given all this, it's likely that Clinton's proposals would invite more dilution and finagling.


The only way to contain the Street's excesses is with reforms so big, bold and public they can't be watered down.

That means busting up the biggest banks and resurrecting Glass-Steagall.

 Robert Reich, former U.S. Secretary of Labor, is professor of public policy at the University of California at Berkeley and the author of "Beyond Outrage," now available in paperback. His new film, "Inequality for All," is now out on iTunes, DVD and On Demand. He blogs at