Banking Reform and St. Elmo’s Fire

There’s a scene from St. Elmo’s Fire where Billy (a long-haired, earring-wearing, drug-dealing Rob Lowe) looks up at a friend dangling from a balcony and says calmly, “Looks pretty out of hand.”

It reminds me of the U.S. banking industry today.

Six years after playing a pivotal role in causing the worst recession the U.S. has had since the Great Depression, our banking system continues to leave us all dangling. Yes, Congress passed the milquetoast Dodd-Frank Act in 2009 as a pro-forma hat-tilt towards reform, but that entire set of regulations was more a symbolic measure aimed at ensuring re-election rather than real reform.

As Dallas Fed President Richard Fisher pointed out Saturday at the Conservative Political Action Conference, things are still out of hand. The largest U.S. banks are “practitioners of crony capitalism,” need to be broken up so they’re no longer too big to fail, and still threaten financial stability.

The problem isn’t just their size. U.S. banks remain too weakly regulated, and have too many incentives to act against the best interests of consumers and the country as a whole, and it’s past time we changed that.


Fixing the U.S. banking industry, making it safe for the future, and protecting consumers isn’t difficult or complicated, and it needn’t cost us a lot in terms of efficiency. It just requires some common-sense regulation, and a modicum of political backbone.

Here’s how:

1. Re-instate Glass-Steagall in all its force and glory. We don’t want banks taking excessive risks with federally-insured deposits. Separate consumer banking from commercial banking with a depleted-uranium wall.

2.  Tie all bonuses to bank stock performance and require employees to hold for at least five years before cashing. This will prevent bank employees from using high-risk get-rich-quick schemes and then bailing when things go sour. Bonuses will still encourage good performance, but requiring employees to hold onto them will eliminate incentives to cheat. Any fraud or deception could be detected within five years.

3. Impose a progressive tax on bank scale. Tax bank assets at an increasing rate as they exceed in a way that won’t cost “smaller” banks anything, but would cost megabanks’ $5 or 10 billion a year. This will force the megabanks to downsize in the most efficient ways possible, eliminating “too big to fail” and increasing competition. The government will never have to bail out banks again, banks will be forced to take responsibility for their own risks, the playing field will be leveled, and consumers will benefit from real competition.

4. Strengthen consumer banking regulation. End the deceptive come-on tactics banks use to dupe consumers into getting in over their heads with high-rate debt. Require disclosure statements to be in 14-point Times New Roman, limited to one letter-sized page. Ban “low introductory rates”. Forbid “pre-approved subject to approval”. Set hard-and-fast limits on late fees and other devices banks use to steal from unwary consumers.

I got a personal letter from a bank the other day, informing me that I’m “pre-approved for a home equity line of credit”. Really? That’s odd, given that I don’t own a home.

5. Jail any bank officer who violates banking laws in letter or in spirit.

It’s time we demand our legislators stand up to Big Finance and enact laws to protect us from the big money power that banks wield.

Otherwise, you’re not gonna believe how out of hand it’s gonna be.