Daily VideoFebruary 3, 2010
Are Big Banks Good for the Economy?
The Obama administration is trying to rein in the activities of big banks and corporations that engaged in the risky trading that helped bring about the recession. Robert Kelley of the Bank of New York disagrees, saying that the U.S. economy needs big banks.
The Bank of New York is the country’s oldest bank and its CEO Kelly argues that in a capitalist country like the U.S., no company should be “too big to fail.”
“You should allow them to fail,” Kelly argues. “And the question is, how do you do it without it impacting the rest of the banks in this country, as well as create a global financial crisis?”
In this part of his ongoing series on Making Sense of the economy, NewsHour economics correspondent Paul Solman talks to Kelly about why he believes President Obama’s plans are a mistake.
“For the less healthy banks who are still trying to rebuild capital and profitability, will they reduce lending because of this, because of this tax? Will they reduce the number of people they employ to help their bottom line? Will they try to pass the costs on to customers? It doesn’t feel constructive to me in many ways.” – Robert Kelly, Bank of New York
“Many of big, big international corporations based here in the United States want to move money around the world very easily and simply. And you can’t do that with small banks. You need big, successful, sophisticated, profitable banks with lots of capital.” – Robert Kelly
“No bank should be too big to fail. That is my view and that is our industry’s view. Capitalism works. Darwinism works.” – Robert Kelly
Warm Up Questions
1. Do you keep money in the bank?
2. How do banks work? Where is your money kept?
1. Why is the government proposing a tax on large banks? What is the nature of that tax? What is it supposed to accomplish?
2. What undesirable “unintended consequences” might a new tax on large banks have?
3. What are the reasons for big banks? Why did banks grow so big?
4. Are the rewards (benefits) to the US economy of “too big to fail” banks worth the risks to taxpayers?
5. What are “economies of scale”?
6. Do you trust CEO Kelly and his board of directors to protect the bank from taking too much risk?
7. Kelly referred to having invested in AAA bonds which turned out to be CCC. Who rates bonds? Do the ratings agencies share the blame for what has happened? Would it have been possible for any investor to figure out that these were not AAA bonds?
8. Do you think the difference in Bank of New York Mellon’s “business model” might make it uncharacteristic of the industry?
9. Do you believe that the government really would NOT bail out a major bank if another crisis loomed?
10. IN-CLASS DEBATE: Are big banks good for America or would we be better off returning to the somewhat smaller ones of a decade ago? (A limit on size of 1% of GDP, say, as economist Simon Johnson suggests)
Tooltip of related stories
Tooltip of more video block
Submit Your Student Voice
The brutally cold winter has taken its toll on the surface of the Great Lakes, causing record ice coverage and obstructing major shipping routes. Continue reading
Officials still have no idea what happened to an airliner that disappeared over Southeast Asia on March 8. Continue reading
DOWNLOAD VIDEO The breakup of Ukraine recently moved a step closer to reality. The parliament…
In March 2011, a massive earthquake and tsunami hit the island nation of Japan, causing a meltdown at the Fukushima Daiichi nuclear power plant. Three years later, experts are trying to assess how recovery efforts in the nuclear-affected area are progressing. Continue reading
The State Department released its annual human rights report last week and concluded that last summer’s chemical weapons attack in Syria, which killed more than 1,400 people, was the worst human rights violation of 2013. Continue reading