The Fourteenth Banker Blog

April 2, 2010

What would happen if we were broken up?

Filed under: Running Commentary — thefourteenthbanker @ 1:04 PM

If you work for a big bank, say Bank of America (great name), what would happen if the bank is broken up? Well, that would be very complicated financially, but the result is probably not that hard to predict.   Most obviously, deposits would need to stay in the core bank. What would this mean for the way the core bank works to succeed, the non core products it distributes, and the way its deposits fund investments compared to the way things are now?    I suspect less net deposits taken out of the community and more loans made in the community.

The different businesses would be spun off to shareholders or sold. Watch the ball here. The Investment Bank is going to want and need a disproportionate share of the capital if they want to maintain their lifestyles. Absent the cloak of respectability the bank provides, they are going to want to be the next Goldman. Watch the ball. Capital is critical. In fact, as a sort of mind game, I wonder how much capital regulators or the SEC or Moody’s would require? What would that leave for the bank?

Is the core bank impacted by “Originate to Distribute” type issues? Does it sell swaps? What happens to the swaps after that? Good questions.   Why the push on credit cards?     Because they can be securitized.     Would we not better serve our clients if we made them direct consumer loans, even some unsecured loans like we used to a long time ago, at a reasonable rate, with a fixed payment that fully amortize in five years instead of minimum payments that drag on forever, endless extra charges and arbitrary changes in terms?     Would that not be a good plain vanilla product for the client?

How would management change its customer service approach? Would it?    Would you have mysterious phone menus cloaked in phone menus and hidden in an enigma?

What would the core banks funding cost be if it did not have to worry about the high leverage, senior unsecured bonds and the CDS spreads needed to support those? Maybe the core bank could both make more money and provide better deposit rates to savers. I don’t know.    Where is the Congress on this?     Why not look at the upside instead of just the fear of systemic risk, important as that is?

Studies consistently cite that the efficiencies (economies) of scale end and $100B or so.    If that is the case, does that not make the multi million dollar men at the top of the pyramid the actual problem?     Money is diverted from the branch to the Executive ranks, Private Wealth, and the Investment Bank.      It is reverse Robin Hood.

So what do the majority of bankers have to fear from a break up?     Nothing.     It would bring management closer to the customer and the employee, create a better customer experience, more equitable pay, better teamwork, and a return to values oriented banking.

Given this common sense, all branch based folks at the thousand and thousands of branches should write their congressmen and women and Senators and ask for the passage of strong TBTF legislation that would restore dignity to their profession.     Let Private Wealth and the I-Bank float on their own.     If you are a shareholder in your 401K or otherwise, you will still get a piece of that action.     The value of the parts is generally greater than the value of the whole anyway.     It is a win-win-win except in the Executive wing and on Wall Street, which is out of touch with Main Street anyway.

Maybe we should organize a million banker March in DC for financial reform.    Too bold?



  1. […] The goal of the blog is to provide a forum for people within the industry who are dissatisfied with both its behavior over the past decade and its stubborn refusal to change its ways in the wake of the financial crisis. Posts include coverage of misdeeds by the financial sector, as well as an inside perspective on issues such as breaking up banks. […]

    Pingback by The Fourteenth Banker « The Baseline Scenario — April 5, 2010 @ 1:26 PM | Reply

  2. A forum for people within the industry.

    Well. Here I am. Now what?

    I agree with Johnson/Kwak on financial regulation/legislation.

    I’ve spoken personally with the CEO of my TBTF employer on these issues; he is not amenable to breaking up the banks or giving up access to the Fed’s discount window.

    It’s a good question: What should we “self-aware” finance drones do? Quitting in righteous indignation solves nothing. Working up the ladder until one gains enough clout to actually do something about it? Temerity I’ve got, but that kind of perseverance is beyond me.

    I’d take a day off to march in D.C., but I’m not sure how many of our comrades would join us.

    Happy to help; you’ve got my email so feel free to reach out.

    Comment by Master of None — April 5, 2010 @ 3:26 PM | Reply

  3. Master of none, that’s what this banker wants people like you, high up the chain of command, wanting badly to change the system before it destroys our precious country.

    As for Washington it’ll do anything that’ll keep it in power. It doesn’t need Wall Street money if it can make a case by ordinary Americans filling it’s front yard.

    As for a protest march, you highly paids might think twice about marching, but us little guys, we’re sick of being forced to oversell our poor customers.

    Give us the direction and we’ll give you the march!!!!

    Comment by Vocalbanker — April 5, 2010 @ 4:23 PM | Reply

  4. Sign me up for the March too.

    I left the largest TBTF in early 2007 when I realized, 1) I was just plain too disgusted to keep fudging the numbers for my CEO/CFO, 2) the influence of one brave person NOT drinking the Kool-Aid, was going to be too small a force to turn the Titanic around.

    Nibbling around the edges like the Dodd proposals do, won’t work at all. I agree that we need to dust-off some of the old regulations (like Glass-Steagal), and repeal most of The Growth Club recent legistlation (like Gramm-Leach, et. al.) and move forward.

    It’s not that I’m anti-growth. God forbid! Just that I prefer to make the pie bigger for everyone, than to scratch-out my own slice at everyone else’s expense. ‘So idealistic!’ (meaning unrealistic), you say. And I say, ‘…well we have a well-trodden path for doing just that.’ It’s called BANKING.

    A banking license is a special privilege granted by the US Government – not a Right. This is a fundamental premise in our Nation – a premise established by our Founding Fathers.


    Because first and foremost – banks are permitted to exist to promote the public good ONLY. Having a banking license enables you to be supported by Government funds – in the rare cases where such is required to protect the public good. In exchange for this privilege, you agree to abide by certain rules in your business dealings with the public. When these regulations are undermined, or eliminated entirely, those ‘rare cases’ will proliferate as a matter of course.

    Second, because banks (in particular) play a special role in our economy. Regulations on banks are desireable, not because anyone has a particular love affair with big government, or desires the government to be more powerful, or particularly trusts the government. They are desireable because regulated banks are uniquely suited to activate ‘the multiplier effect’. That is, when you have money, you can make money. And THAT, and only THAT, is the key to this country’s economic success.

    In our current state, licensed banking institutions have used their privileged status to buy-off politicians to eliminate the rules – in favor of ‘self regulation’. Nice work if you can get it.

    But, when you mistake the theories of Adam Smith for those of Charles Darwin you end up with a Dickensian-style bastardization of capitalism which, by definition, punishes the poor masses and rewards the righteous rich. So, no surprise we got what we got.

    I say, if you wanna trade or gamble, establish a Partnership, get all your rich friends to pay-in, and skip the banking license – and the public guarantee. Lose what you lose, win what you win, and pay yourself what you want – but don’t go crying to the GOVERNMENT to save you from yourself.

    One very important reason to break-up the current ‘Universal Banking’ model – INDIVIDUALS ARE NOT INSTITUTIONS.

    Even if you bundle them into pools managed by ‘professionals’.

    There are no derivatives without Consumer products to securitize and bet against. There would be relatively little institutional money to bet, without pools of our retirement funds and savings.

    So the ‘liberty’ of banks and corporations to operate in a free market becomes inversely related to the liberty of the People, precisely because when operating in a ‘free market’, banks (in particular) are free to create products that financially enslave the public, to require the public to buy such products, and to underwrite the risk of such products with public funds.

    If you can create and sell banking products that are designed to crush a household’s net worth – rather than enhance it – you eat the hand that feeds you.

    … and without regulations on banks to activate the multiplier effect of millions of hardworking Americans – this country is in a freefall to the bottom of the global economic league table.

    On the other hand, if we re-institute the tried-n-true regulations, the money goes back into the community, which then invests it to make more, creating more deposits and payments for the banks. We make the pie bigger via wealth creation – not scratch-out our own individual slice via wealth destruction. It’s a virtuous cycle.

    In addition, if you re-instate a George Bailey-style banking ethic, you will entice exactly the right sort of talent toward the banking system. Many of us have left in disgust – and many more continue to labor under duress. I’ve heard over and over again the laments of well-paid bankers that if we lower compensation standards we’ll lose all our ‘talent’. This is true, if by ‘talent’ you mean ‘mercenaries’. Pay people what they need, and give them a position where they’ll be respected for succeeding by driving wealth creation for their neighbors – and you will always attract the right talent pool.

    This is not an idealistic, utopian goal – it’s a well-trodden path discovered on the backs of the millions of suffering Americans post-Depression Era.

    Comment by Lucy Honeychurch — April 5, 2010 @ 10:54 PM | Reply

  5. […] this post The Fourteeth Banker blog asks: What would happen if we were broken up? If you work for a big bank, say Bank of America […]

    Pingback by What “escaped” media headlines today…. « Epiphanyblog — April 7, 2010 @ 3:57 PM | Reply

  6. […] Banker – a blog run by bankers within the big banks for bankers within the big banks – called for a campaign by bankers to demand that the mega-banks be broken up: If you work for a big bank, […]

    Pingback by Guest Post: Banking Industry Insiders Call for Breaking Up the Too Big to Fails « naked capitalism — April 7, 2010 @ 9:06 PM | Reply

  7. What i now is that i bilve on the action

    Comment by Chibuike — September 9, 2010 @ 2:00 PM | Reply

  8. […] Banker – a blog run by bankers within the big banks for bankers within the big banks – called for a campaign by bankers to demand that the mega-banks be broken up: If you work for a big bank, […]

    Pingback by Banking Industry Insiders Call for Breaking Up Giant Banks - Washington's Blog — September 21, 2011 @ 2:10 AM | Reply

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