Republicans were in the hot seat last night in a heated debate that touched on topics such as Dodd-Frank, the Federal Reserve, and most importantly the possibility of a big bank bailout imposed on taxpayers, a topic that many had much to say about.
The fourth Republican debate, hosted by the Fox Business Network and The Wall Street Journal included presidential candidates Donald J. Trump, Ben Carson, Sen. Marco Rubio, Jeb Bush, Sen. Ted Cruz, Carly Fiorina, Gov. John Kasich, and Sen. Rand Paul.
The consensus among the candidates was that a taxpayer-funded bailout is no longer an option to save big banks, but there are other ways to support these institutions through different measures.
At the end of October, the industry buzzed when Hillary Clinton stated her stance on "too big to fail" on Stephen Colbert's "Late Show," indicating that she would let big banks fail, according to the Huffington Post.
"Yes. Yes, yes, yes, yes, yes," Clinton said. "Their shareholders have to know that yes, they will fail. And if they're too big to fail, then under my plan and others that have been proposed they may have to be broken up."
"In Dodd-Frank, you have actually codified too big to fail. We have actually created a category of systemically important institutions, and these banks go around bragging about it. You know what they say to people with a wink and a nod? We are so big, we are so important that if we get in trouble, the government has to bail us out. This is an outrage. We need to repeal Dodd-Frank as soon as possible." -Sen. Marco Rubio
One of the major issues tied to the failure of big banks is the Dodd-Frank Act, which most candidates mentioned in their speaking segments.
Since the Wall Street reform and consumer protection law was enacted in 2010, Republicans have decried it and made numerous attempts to roll it back.
They say Dodd-Frank makes big banks bigger and crushes community banks. They have criticized the Consumer Financial Protection Bureau (CFPB), which was created out of Dodd-Frank, saying the Bureau does not protect consumers but in fact makes credit tighter and more expensive to obtain.
Jeb Bush said in the debate that there should not be another financial crisis, but instead, the government should "raise the capital requirements so banks aren’t too big to fail. Dodd-Frank has actually done the opposite, totally the opposite, where banks now have higher concentration of risk in assets and the capital requirements aren’t high enough. This vast overreach has created a huge problem for our country, and Hillary Clinton wants to double down on that."
As far as breaking up the big banks goes, Ben Carson explained that a better approach would be to introduce policies that don't allow these massive institutions to continue to grow at the expense of smaller banks.
In response to the debate, Dr. Rick Roque, Managing Director, Retail at Michigan Mutual told MReport that "it will be very interesting to assess the broader risk in having more than 75 percent of all deposits with only four or five banks from across the country; it is widely understood that despite the new liquidity tests, amidst a financial crisis, the banks would be just as vulnerable today as they were pre-2009. Having said this, in our lifetime, it is highly unlikely that we will experience a financial crisis akin to the one in 2009."
"In various industries when a significant portion of the market is consolidated around a few competitors, as it happened and telecom, with the break up of "the Bells" in the early ‘80s, a new competitive landscape in telecommunications was created that inevitably fueled the telecommunication boom in the mid-90s. I suspect that if we do the same thing with the big banks, there will be brighter opportunity for that market share to be competing for across a new set of competitors," he added.
Sen. Marco Rubio said that banks are big because the government made them big with regulations that smaller banks just cannot handle and he would "absolutely not" bail out big bank again.
"The big banks get bigger and bigger and bigger under Dodd-Frank and community banks are going out of business. And, by the way, the consequence of that is small businesses can’t get business loans," Rubio stated.
He added, "In Dodd-Frank, you have actually codified too big to fail. We have actually created a category of systemically important institutions, and these banks go around bragging about it. You know what they say to people with a wink and a nod? We are so big, we are so important that if we get in trouble, the government has to bail us out. This is an outrage. We need to repeal Dodd-Frank as soon as possible."
Earlier this month, the Federal Reserve proposed a new rule that will remove some of the pressure from the government and taxpayers concerning eight of the nation’s largest banking institutions.
The institutions, or those deemed as global systemically important banks (GSIBs) could be required to collectively come up with $120 billion to meet a new long-term debt requirement and a new "total loss-absorbing capacity” (TLAC).
"The long-term debt requirement we are proposing today, combined with our other work to improve the resolvability of systemic banking firms, would substantially reduce the risk to taxpayers and the threat to financial stability stemming from the failure of these firms," said Fed Chair Janet L. Yellen. "This is an important step toward ending the market perception that any banking firm is ‘too big to fail.'"
Click here to watch the full debate.