The Fattest or the Fittest?

From Gretchen Morgenson on the New York Times website:

Institutions most likely to receive assistance from the federal government if they become troubled — behemoths like Citigroup, Bank of America or Wells Fargo — have grown only larger in recent years.

... the army arguing for change is far outgunned by the battalions of bankers and lobbyists working to maintain the status quo. But some combatants seeking reform believe they are making headway.

Richard W. Fisher, the president of the Federal Reserve Bank of Dallas ... described, quite colorfully, the problems of these unwieldy institutions and the regulatory ethic “that coddles survival of the fattest rather than promoting survival of the fittest.”

...Sheila Bair, former chairwoman of the Federal Deposit Insurance Corporation ... “I know that many members of this subcommittee heard the same arguments that I heard during the crisis — that bailouts were necessary or the ‘entire system’ would come down,” she said. “But we never really had good, detailed information about the derivatives counterparties, bond holders and others who were ultimately benefiting from the bailouts and why they needed protecting.”

Such details are still kept under wraps. Ms. Bair urged the Fed and the F.D.I.C. to write rules requiring banks to report on their interrelationships. That way, distress at one institution can be recognized before it causes crippling losses at another.

In her testimony, Ms. Bair also urged regulators to write rules requiring executives and boards to be “personally accountable for monitoring and compliance” of the institutions they oversee.

...“What in the world are they being paid for?”

At the moment, they are being paid for taking risks that generate lush bonuses when things go well but that require taxpayer bailouts when the tide turns. Main Street understands that this is wrong and that allowing it to continue is dangerous. It’s past time that Washington did something about it.

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Link: http://www.nytimes.com/2011/12/11/business/a-fed-banker-wants-to-break-up-some-banks.html