Now that former Citi CEO Sandy Weill has said that he thinks that Wall Street banks should be broken up, everyone’s talking about how it could be done as painlessly as possible.
And since Wall Street and the government are majorly at odds these days, we’re also wondering how it could be done without them having to interact much.
Enter Cornelius Hurley. He’s a former counsel to the Federal Reserve Board of Governors and director of the BU centre for Finance, Law & Policy, and he has an idea of how to break up the banks without much government intervention at all.
In fact, his idea depends totally on the shareholders.
The lynchpin of Hurley’s plan is the lowered rate at which Wall Street banks are allowed to borrow because of how massive they are. He thinks it’s a tax-payer subsidy that distorts competition between big banks and their smaller peers and leads to excessive risk taking.
So here’s what you do about that:
- Figure out how much that subsidy is costing taxpayers.
- Make the 6 big banks (JP Morgan, Bank of America, Citi, Goldman, Morgan Stanley, and Wells Fargo) hold reserve accounts equal to what they’re costing taxpayers as capital for bankruptcy purposes.
- Require that the reserve not be used to pay dividends, or to do share buy-backs but can only be distributed to shareholders when allocated to a divestiture or a spinoff of a bank’s assets. Other than that, the reserve will just pile up year after year.
- Wait until shareholders flip out.
“This elegant solution would restore fair competition to the financial markets and end once and for all the distortions created by the 2008 bailouts,” Hurley told Business Insider. “Since it is shareholder and not government driven it just might garner bi-partisan support.”
Then again, who knows what would garner bi-partisan support in the Washington we’re seeing these days. Hurley had his doubts about the idea too.
“You can begin this story saying: ‘This nutty professor has an idea that’s totally out there,’ if you want to,” he said.
No way, we told him. We’ve definitely heard worse.
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