“Too Big to Fail” Policy Failing Small Banks: NCPA


Source: NCPA

Dallas, TX (12/15/2015) – The “too big to fail” doctrine that resulted from the 2008 Financial Crisis is dampening competition and hurting small banks, according to a new study from the National Center for Policy Analysis by economist John Berlau.

“In the financial industry, as in any other industry, greater competition can help bring stability, innovation, and choice,” says Berlau. “These unofficial government policies have effectively stunted growth in the community banking sector, and now businesses and consumers are paying the price.”

In order to end the “too big to fail” doctrine and promote competition, Congress should:

  • Require new procedures for regulatory agencies that mandate a specific time limit on approval or denial of new bank applications,
  • Exempt small banks from the regulatory burden of Dodd-Frank
  • Eliminate the Financial Stability Oversight Council, which implicitly guarantees banks that are “too big to fail,”
  • Repeal the Bank Holding Company Acts of 1956 and 1970, so that nonfinancial companies can enter the banking industry, and
  • Repeal the Volcker Rule in Dodd-Frank that restricts proprietary trading.

“It is time to bring what the great economist Joseph Schumpeter called ‘creative destruction’ to the banking industry, by bringing in the competition from new entrants that exists in every other industry,” says Berlau. “There are no banks like new banks.”

John Berlau is a senior fellow at the Competitive Enterprise Institute. Mr. Berlau has written about the impact of public policy on entrepreneurship and the investing public for many publications and is a frequent guest on many radio and television.