Bank of America (NYSE:BAC) CEO Brian Moynihan has seen the potential risk inherent in the dissatisfaction with huge banks in the United States, and he’s come out swinging since his installment of CEO of the company, replacing Ken Lewis, trying to draw attention away from the “too big to fail” factor and center it on other elements of the banking industry.
Regulators, because it’s politically popular and shores up their political capital, have been talking a lot about breaking up the huge banks in order to reduce the risk to the economic system in the United States.
One Wednesday, Moynihan attempted to shift the conversation away from bank size to more on what he called “contagion risk” existing between the financial companies.
Talking to the newly created 10-member panel Financial Crisis Inquiry Commission, Moynihan stated concerning these various related elements that it “…starts with recognizing that ‘interconnectedness’ and not ‘bigness’ is what led to the need for taxpayer bailouts.”
“We need to consider the downside of debilitating larger financial firms, by requiring them to shed economies of scale or permitting them to service only part of a corporate customer’s needs,”said Moynihan.
Moynihan used the example of the complexity in connection to companies like Fannie Mae, Freddie Mac and AIG, where the amount of leverage used in that context was the chief reason for the financial crisis, and not the size of the banks or financial institutions involved.
All of this of course shouldn’t even be an issue or a part of the national dialogue, as the companies should have been allowed to fail, making the point mute as far as the why of it. Those companies which were run well would have stepped up and taken over the healthy assets of the failed companies, and from there we would have seen what separated them from those that failed. It wouldn’t have been that hard to discover.
Congress created the 10-member panel in order to search out the reasons the economic crisis happened in the industry. Today’s hearing was the first public hearing held by the commission since its inception.
Other executives to testify at the hearings include those from JPMorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS).
