We need to rein in ‘too big to fail’ banks

by. Elizabeth Warren, John McCain, Maria Cantwell and Angus King

More than five years after the bankruptcy of Lehman Brothers and the beginning of the most severe economic downturn since the Great Depression, lawmakers should ask themselves whether they have done enough to reduce the risk of another financial crisis. In our view, the answer is no.

The chances of another financial crisis will remain unacceptably high as long as there are financial institutions that are “too big to fail” — entities that are deemed so important to the overall health and functioning of the markets that their collapse would bring down the entire financial system.

But over five years after the crash, the big banks are more concentrated and more interconnected and their appetite for excessively risky behavior is unchanged. The biggest banks are substantially bigger than they were in 2008. In fact, the five biggest banks now control more than half the nation’s total banking assets.

Despite a marked increase in banks’ overall stability since 2008, the risk of systemic failure continues to exist. In 2012, JPMorgan Chase suffered a $6.2 billion loss because of the so-called “London Whale” trades. The bank’s senior management, board of directors, and internal risk controls failed to stem the rapidly expanding losses. In its settlement with federal regulators, the bank admitted wrongdoing and acknowledged that there were severe problems with its internal controls.

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