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Public Citizen to House Subcommittee: Yes, Dodd-Frank Authorizes Breaking Up Big Banks

April 16, 2013

Public Citizen to House Subcommittee: Yes, Dodd-Frank Authorizes Breaking Up Big Banks

Statement of Micah Hauptman, Financial Policy Counsel, Public Citizen’s Congress Watch Division

Note: Public Citizen submitted testimony to the House Financial Services Subcommittee on Oversight and Investigations in advance of its hearing today titled “Who is Too Big to Fail: Does Dodd-Frank Authorize the Government to Break Up Financial Institutions?” The testimony is available here.

Public Citizen commends the House Financial Services Subcommittee on Oversight and Investigations for holding today’s hearing to discuss the government’s authority to break up financial institutions under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In January 2012, Public Citizen called on the Federal Reserve and the Financial Stability Oversight Council to break up the financial behemoth Bank of America. We relied on a relatively obscure provision in the Dodd-Frank Act, Section 121, which grants financial regulators authority to mitigate the grave threat that an institution poses to U.S. financial stability. More than 30,000 people have signed our petition calling for regulators to break up the bank into pieces that are smaller, simpler and safer for market stability.

But regulators appear unwilling to use the broad authorities in their arsenal to safeguard financial stability, and the Federal Reserve Board’s three-paragraph response to our detailed petition suggests that regulators may not be taking seriously their responsibilities under Dodd-Frank. As a result, too much risk remains concentrated in and between the largest financial institutions.

Issues relating to financial institutions’ excessive size and complexity have not just created a “too big to fail” problem; they have metastasized into a “too big to jail” problem. Just last month, U.S. Attorney General Eric Holder admitted that some of our banks are too big to prosecute. A U.S. policy that immunizes the largest and most complex banks and their executives from criminal prosecution reinforces the notion that they pose a grave threat to the financial system and larger economy—effectively enabling them to hold regulators and prosecutors hostage. Such a notion is antithetical to market-based principles and to any reasonable sense of equal justice under law.

If financial regulators refuse to take decisive action to safeguard financial stability, then we will remain susceptible to another economic crisis. But there is still an opportunity for regulators to use their authorities under Dodd-Frank. We urge regulators to use those authorities and for Congress to continue to use its oversight authority to hold regulators and banks accountable.

We also support congressional efforts to limit the size or scope of financial institutions’ activities, to increase transparency around deferred prosecution decisions that may have been based on the size of the institution, and to craft higher equity capital requirements in a way that encourages the largest institutions to restructure their businesses.