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Another view: Feds must counter 'too big to fail'

9:09 PM, Jul. 18, 2013  |  Comments
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"Too big to fail." Remember that?

People shouldn't fool themselves that it no longer exists because it most certainly does. The country's biggest banks could wreak all sorts of financial havoc if they start to go bust, and the lessons from the financial crisis leading to the deep recession are too easily forgotten.

Surely, it's far better to take precautions - yes, to set regulations - aimed at mitigating the chances of another precipitous financial slide, of another unseemly scenario of taxpayers being asked to shell out billions of dollars to prop up megabanks that either overextend themselves and/or involve themselves in over-the-top business ventures.

To that end, in a move that should be getting considerably more attention than it is, federal regulators are moving forward with a reasonable plan to make eight of the largest U.S. banks meet a stricter measure of health, thus reducing the threat they pose to the financial system.

But regulators - and Congress - should go much further.

These banks will have to increase their ratio of equity to loans and other assets from 3 percent to 5 or 6 percent. In layman's terms, that means they will have to demonstrate they're on stronger financial footing than previous standards. The banks are: Goldman Sachs, Citigroup, Bank of America, JPMorgan Chase, Wells Fargo, Morgan Stanley, Bank of New York Mellon and State Street Bank.

Rules also are supposed to limit banks from certain kinds of speculative, high-risk trading that were part of the reason for the financial meltdown.

These regulations, intended to minimize the need for future bank bailouts, were approved by Congress as part of a financial reform package in 2010, but are taking far too long to iron out and implement.

What's more, when it comes to policing the Wall Street giants that can bring the country to its financial knees, a mound of regulations won't do anything without rigorous and meaningful enforcement.

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