WASHINGTON — Former Utah Gov. Jon Huntsman called on Congress to reignite the debate about “too-big-to-fail” banks, saying that the system gives unfair advantages to large financial institutions.
“I think this issue is going someplace because it is based on a genuine imbalance in our system,” said the 2012 Republican presidential contender and former CEO of Huntsman Corp.
Huntsman, former Federal Deposit Insurance Corporation Chairwoman Sheila Bair and Sen. Sherrod Brown, D-Ohio, discussed effective regulatory and oversight policies for the global financial system Tuesday at the Peterson Institute for International Economics.
Current American policy encourages risk by providing economic incentives to banks and other institutions that take positions that are high-risk, high-return in order to profit, according to Bair. The former regulator supported more stringent restrictions on banks as part of the financial bailouts during the height of the recession.
“Too big to fail is real,” said Bair. “Why else do we have these bailouts?”
The term too big to fail describes certain financial institutions that are so large and interconnected that their failure would be seen as disastrous for the economy.
During the 2008 global financial crisis, the federal government provided bailout money to a number of such institutions, including the American International Group, Citigroup and Bank of America, through the Trouble Asset Relief Program (TARP).
Brown cited the example of JP Morgan Chase, which suffered losses during the financial crisis, even though he said CEO Jamie Dimon is regarded as among the most talented in the nation.
“It’s not just too big to fail, it’s too complicated to manage and too hard to regulate,” Brown said.
Huntsman said the government should respond by taking some of the risk out of the system.
“It’s important to analyze and share with the American people the risk that we’re carrying,” the former U.S. ambassador to China said. Once the risks are broken down into facts, Huntsman said Congress can begin to create better policies.
President Barack Obama should also work to improve how government handles faltering institutions considered too-big-to-fail, Bair, an appointee of former President George W. Bush, said. She said the president should expand beyond the changes in 2010’s Dodd-Frank financial reform law.
“We need more leadership from the administration, too,” Bair said. “We’re still not getting a lot of leadership on this issue.”
To minimize these consequences, Huntsman suggested levying a fee on large banks until they “right size themselves to a point where they’re not too big to fail.”
Brown, who was elected to a second term in November and serves on the Senate Finance Committee, said the government should respond by placing a greater emphasis on manufacturing over financial services.
“We aren’t making enough things now,” he said.
Huntsman is hopeful that unfair economic incentives will be addressed by Congress and the Obama administration. In his campaign for the 2012 Republican primary, where he was seen as a moderate alternative, he said he found voters were troubled by the bailouts and Wall Street excesses.
High executive salaries on Wall Street further undermine the public’s faith in the financial sector, Brown said. The view that the government is protecting these businesses often makes politicians unpopular as well.
“It’s the corruption of the systems, not the corruption of individual senators,” Brown said. “I realize that sounds self-serving,” he added.