Dodd-Frank and the Too-Big-To-Fail regulations of the Great Recession have done nothing to curb the growth and expansiveness of multinational banking institutions here in the United States. Our politicians’ actions in Washington D.C. have failed to address the heart of the issue in the big-banking world: accountability. Corporate behemoths such as JP Morgan Chase have shamelessly lobbied Congress for the kind of downside protection that affords key members in the banking echelons not only the notorious golden parachutes that reward failure of duty, but also the kind of criminal immunity that Attorney General Eric Holder has referred to as “Too Big to Jail.” Crony capitalism of this form is the result of a lack in accountability.
The facts show that these obese banks game the system. They have found creative ways around the Volker Rule, legislation that banned the high-risk practice of proprietary trading. The reason they can and do game the system is because their size divests them of accountability to the customers they are supposed to be serving. Indeed, one large bank is known to refer to its customers as “muppets”. As drone attacks make fighting a war more impersonal, and thus, easier to rationalize, so do the actions of institutions that, because of their size, have created positions so specialized as to blur employees’ vision of their broader action and the morality behind such action. The right hand knows no longer what the left hand is doing.
The regulations the federal government has responded with have created the façade that our Congress is acting to curb the growth of these banks. Higher capital requirements, seemingly sensible to reduce risk, are a mere short-run band aid for a problem with no end in sight. Long-run, high-stakes betting, not covered by Volcker remains a virus in the banking system. As often happens when government policies lay down a blanket for reform, the little guys are squeezed out by higher costs in operations. Smaller banks find it more difficult to survive.
Should we not be rewarding accountability and deterring its obsolescence? Small banks (as well as businesses) focus on cutting costs and reducing waste as much if not more than their larger counterparts. Their efficiency is a product of a drive in quality. They are held accountable because clients are not “muppets” but rather the lifeblood of the institution. The clients live next door and form an integral and valued part of the system that generates their profits.
In 1904, Amadeo Giannini founded the Bank of Italy in San Francisco where he provided services to the immigrant communities of the city. He is great not because of his resulting progeny now known as Bank of America, but because his actions, at the most local level, served to ease the painful effects of San Francisco’s 1906 earthquake. Giannini was a banker accountable to his society. His motivation did not lie in the obfuscated derivatives of today’s Wall Street, but in the life of his neighbors who needed his help.
Accountability should be the overall aim of a society, not only for a recovering economy but also for one that wants to achieve sustainable growth, smoother business cycles, and higher quality products.