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AAII Survey: Investors Weigh in on Proposed “Too Big to Fail” Legislation

A bill filed in both chambers of Congress earlier this month would require six financial institutions and four non-banks to divest business units in an effort known as “too big to fail, too big to exist.” The bills were filed by Sen. Bernie Sanders, I-Vt., and Rep. Brad Sherman, D-Fla.

The six financial institutions are Bank of America Corp., Citigroup, Goldman Sachs, JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co. The non-banks are American International Group, Berkshire Hathaway, MetLife and Prudential Financial.

The bill would require breaking up corporations that have a total exposure of greater than 3% of gross domestic product (GDP), or at least $584 billion, according to CNBC.

A PDF version of the bill is available here: https://www.documentcloud.org/documents/4953767-TOO-BIG-to-FAIL-TOO-BIG-to-EXIST-ACT.html?embed=true&responsive=false&sidebar=false

“No financial institution should be so large that its failure would cause catastrophic risk to millions of Americans or to our nation’s economic well-being,” Sanders said in a statement. “No financial institution should have holdings so extensive that its failure would send the world economy into crisis.”

The Financial Services Forum, which represents America’s eight largest banks, responded to the bill in a statement: “The banking industry and governments around the globe have made enormous strides during the past decade to ensure that large banks are safe and sound and that no institution is too big to fail,” Financial Services Forum president and chief executive Kevin Fromer said. “Policymakers must neither ignore the progress that has been made nor the essential role of large financial institutions in our economy,” Fromer added.

AAII Weekly Survey Question

In light of this proposed legislation, we asked our readers whether they supported such a move by the government:

Do you support the proposed “too big to exist” legislation?

Here are the results of the survey:

In all, 2,124 readers participated.

The majority of readers (60%) say they would support the breakup of “too big to exist” financial institutions.

Another 21% say they do not support such government action while the remaining 19% are unsure whether they support the proposed legislation.

Weekly Special Question

To get specific input on how our readers view to proposed “too big to exist” legislation, our weekly special question asked:

Do you think such legislation would protect consumers and the U.S. economy? What do you think about this legislation?

In all, we received 356 responses, with the responses in favor of breaking up “too big” financial institutions outnumbering those opposed by nearly two-to-one.

Here is a sampling of the responses from our readers as to where they believe “too big to exist” legislation would protect consumers and the U.S. economy:

  • “I think consumers would be better protected by bringing back parts of Glass-Steagall, or, separating brokerage and stock trading functions from traditional banking functions.”
  • “By breaking up the large banks, this legislation would impair the flexibility of our economy.”
  • “No company should be able to use customers’ funds to speculate. The companies have no reason to make sound business decisions if we, the taxpayer, bail them out after egregious mistakes.”
  • “Provides a first step to avoiding another crisis for the long run.”
  • “All efforts to support competition as perfect as it can get should be supported by the main ump in our economy – the US government. However, our government as it is presently constructed leaves much to be desired!”
  • “We must pass this legislation if we have learned anything from the 2008-2009 Financial Panic where these large banks and non-bank entities almost destroyed the financial system. Break them up and don’t bail them out with my taxpayer money.”
  • “Excluding mismanagement, I believe a larger institution is better able to absorb a general financial shock that a smaller one. A successful economy can never, ever be legislated. Beware the law of unintended consequences.”
  • “Before government policy changes to break up big banks and insurers, it is in the country’s economic interests to know what impacts it has on the economy. It cannot be assumed the impacts are beneficial or who will be impacted positively or negatively.”
  • “I have no problem with the restrictions on bailouts, etc. I have a massive issue with breaking them up.”
  • “Uncertain that this would prevent another financial crisis. In fact, it might just result in a series of dominoes to fall.”
  • “Bank regulation is extremely complex. As a result, the devil is in the details.”
  • “I feel that there is lingering resentment among many people that the Great Recession was a disaster for everyone but the businesses that were deemed ‘Too Big To Fail.’ Although one could cast a very broad net of blame, I think that some of our financial institutions need to be reined in and be held to a greater degree of accountability than they are now. Legislation will never protect consumers from themselves but it may help spare them by checking the excesses of these very, very large institutions.”
  • “Big government getting bigger! What happened to the free market?”

Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at www.aaii.com/memberquestion.

 

 

3 thoughts on “AAII Survey: Investors Weigh in on Proposed “Too Big to Fail” Legislation”

    1. Understand your sentiment. However technology has a way of changing the environment. For those old enough to remember and especially those who weren’t, the government decided back in the 40s to put a limit on how much interest could be paid on savings deposits so as to encourage Savings and Loans to make low fixed rate 30 yr mortgage available at affordable prices to encourage home ownership. Worked for awhile until Merrill Lynch figured out away to pay higher rates. Then to compete they allowed the S&Ls to pay higher rates. Unfortunately they had the 30 yr mortgages and most of them went bankrupt. My point is that government regulations often have bad results and I would be very careful about supporting this law before very careful analysis under all conditions.

       
  1. I get a kick out of the last comment: “Big government getting bigger! What happened to the free market?”

    If you really believe in a *free* market you let those guys fail which would destabilize the economy and potentially lead to another Great Depression, destroying jobs and creating global unrest for many, many years. We haven’t been willing to pay that (completely avoidable) price, so we’ve bailed them out instead. That’s no longer a free market. Get over it. Truly free markets have enormous risks and we haven’t even talked about environmental issues.

     

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