What Would Breaking Up the Banks Even Look Like?
A too-big-to-fail, too-complex-to-manage bank such as JPMorgan Chase should be split into three parts. The investment bank could be spun off entirely. JPMorgan’s creative investment bankers would relish the chance to turn the franchise into a partnership, with the freedom to pay themselves what they please. The remaining bank would be split into a wholesale bank, for large corporate clients, and a retail bank, the only taker of insured deposits.
.. The investment bank would be regulated as lightly as a hedge fund, but would not have access to financing that uses taxpayer money. The wholesale bank would provide only simple banking products, including foreign exchange and interest-rate hedges. The retail bank would be limited to consumer banking and small-business and mortgage lending, with no scope for high leverage or the big-scale securitization that sank otherwise simple banks, such as Washington Mutual, in the crisis.
.. Just as important as a structural change is the need to eliminate the culture of bonuses at consumer-facing banks.
.. The bonus pool would skim off 40 to 50 percent of revenues up-front while any losses hit only shareholders and taxpayers.
.. In my view, when banks have access to central-bank funding there should be a legal limit to what they can pay their employees ($500,000 a year wouldn’t be unreasonable).
.. In my view, when banks have access to central-bank funding there should be a legal limit to what they can pay their employees ($500,000 a year wouldn’t be unreasonable).