Need another reason to believe that we should move to break up the United States' "too big to fail" mega-banks? Consider this amazing exchange, transcribed here by the American Banker, between U.S, Senator Chuck Grassley (R., Iowa) and Attorney General Eric Holder. During a Senate Banking Committee hearing, Grassley suggests that some of those same banks are "too big to jail," and Holder essentially agrees. Yes, he says, concerns about systemic risk may mean that some banks are able to avoid potential prosecution:
Sen. Chuck Grassley, R-Iowa: In the case of bank prosecution. I'm concerned we have a mentality of 'too big to jail' in the financial sector, spreading from fraud cases to terrorist financing to money laundering cases. I would cite HSBC.
I think we are on a slippery slope and that's background for this question. I don't have recollection of DOJ prosecuting any high-profile financial criminal convictions in either companies or individuals.
Assistant Attorney General Breuer said that one reason that DOJ has not sought these prosecutions is because it reaches out to 'experts' to see what effect the prosecution will have on the financial markets. On Jan. 29, Sen. [Sherrod] Brown and I requested details on who these so-called 'experts' are. So far we have not received any information. Maybe you're going to but why have we not yet been provided the names of experts the DOJ consults as we requested on Jan. 29? We continue to find out why we aren't having these high-profile cases...
Attorney General Eric Holder: We will endeavor to answer your letter, Senator. We did not, as I understand it, endeavor to obtain experts outside of the government in making determinations with regard to HSBC.
Just putting that aside for a minute though, the concern that you have raised is one that I, frankly, share. I'm not talking about HSBC here, that would be inappropriate. But I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy. I think that is a function of the fact that some of these institutions have become too large.
Again, I'm not talking about HSBC, this is more of a general comment. I think it has an inhibiting influence, impact on our ability to bring resolutions that I think would be more appropriate. I think that's something that we — you all [Congress] — need to consider. The concern that you raised is actually one that I share.
This may be the latest example of a "Kinsley gaffe" - a situation where a politician accidentally acknowledges an uncomfortable truth. It's not really a surprise - the phrase has come up before in the HSBC case. But it's almost shocking nonetheless.
When our nation's top law-enforcement officer acknowledges that our laws may be unenforceable against our most powerful financial institutions, it's a powerful argument, all by itself, for revisiting the question of a mega-bank breakup that we were, perhaps understandably, reluctant to face at the depths of the financial crisis.
You can also watch the exchange on YouTube here: