Why Are American Companies Become Too Large To Fail?

The financial industry had gone to several crises through the decades. Around 2008, Alex Preston notice that the investments banking industry was in a crisis. Big banks were closing its doors or selling out to other companies. As it was the case of the National City Corp.; the first ever American’s mortgage maker had to close its doors after taking a large amount of proprietary risk. Other big financial companies like Goldman Sachs and Morgan Stanley, to avoid having to go down the same way, became bank holding companies, which means that these companies could receive emergency federal funds.

In 2008, when the financial crisis occurred, millions of Americans were left without jobs and trillions of dollars of wealth was lost wealth. To make sure the Great Recession would not happen again, President Barrack Obama put into effect the Dodd- Frank Act. With the help of this law, banks will not be able to take irresponsible risks that had negative effects on the American people. Furthermore, with the Volcker Rule embedded into the act, it will ensure that banks are no longer allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their

However, it is clear that these unethical practices served as catalyzers of the financial crisis. Even though many financial institutions that could be held responsible for the 2008 crisis no longer exist and that legislation, as the Dodd-Frank, has been passed in order to further regulate financial institutions, many of the institutions responsible for the crisis are still in the core of the economy, controlling a very big part of it. It might be impossible for the general public to fight against a possible future recession, as the power of an individual is close to insignificant in comparison to the power of an established financial

The banking industry has undergone major upheaval in recent years, largely due to the lingering recessionary environment and increased regulatory environment. Many banks have failed in the face of such tough environmental conditions. These conditions

The problem for banks is that they now can’t use that small percentage of low yielding assets to turn a profit on, and this makes them very sad. You see, bank CEOs don’t really care if their banks fail and millions of American are left in a lurch due to a lack of this protection. They simply want to make as much profit as possible and let the potential carnage to the markets be damned – that’s because the executives of a bank can walk away with all their money, while leaving a decimated stock market behind.

In September of 2016, it was revealed that there was alleged misconduct at one of the largest and safest banking institutions in the United States. Wells Fargo Bank was ranked among the nation’s safest financial institutions according to an analysis done by Global Financial, (Inside Tucson Business, 2009). Alleging that between May 2011 and July 2015, there were more than 2 million bank accounts or credit cards opened for customers without their knowledge or permission (Blake, 2016). Clients started complaining the they were receiving debit/credit cards from the bank that they had not ordered. Wells Fargo employees also started complaining that about the unethical behaviors they witnessed or were asked to participate in to the Human Resource Departments, the bank’s internal ethics hotline, branch’s individual managers and supervisors. All which led to the discovery of the fraud scandal.

However, after five years of the financial crisis happened in 2008, is the “too big to fail” problem being solved or controlled? Jim Puzzanghera who published his article on Los Angeles Times insists that banks considered too big to fail are even bigger now. Puzzanghera provides his opinion based on the data he collected, “Just before the financial crisis hit, Wells Fargo & Co. had $609 billion in assets. Now it has $1.4 trillion. Bank of America Corp. had $1.7 trillion in assets. That's up to $2.1 trillion.” Puzzanghera explores that one main concern of coming out with a solution to this “too big to fail” problem is that Democrats and Republicans rarely reach an agreement on the problem. Most Democrats are willing for the federal authority to seize the power and to get rid of the firms if they are too big to fail while most Republicans do not want to force the banks to shrink. In stead of regulating those big financial firms, “the government's new power to seize large financial firms teetering near collapse could result in them being rescued instead of shut down, in effect enshrining

Many people believe that monopolies are bad for society. Large corporate monopolies prevent small business owners and start up companies from competing in the market. Some would say that this type of market would be preventing the American dream. Large corporations keeping the little man down, but has that always been the case? Throughout the economic history of the United States there have been times when monopolies have benefited people. For example, John D. Rockefeller build the major monopoly Standard Oil in 1800s. During this time people, who could afford it, used kerosene to light their homes (Constitutional Rights Foundation, 2000). There were no regulations or standards that had to be met during the production of kerosene. A man could

America’s most resent crisis was the global financial crisis that started in 2008. It began with the bankruptcy of Lehman Brothers on September 14, 2008 and it spread like a flood through financial markets. At first the U.S banking sector had a great fall in liquidity, with this contraction in commercial lending banks could not pay their expenses. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. This crisis was further compounded because the majority of the banking industry in the united states was is managed by four banks. These banks are referred to as the “Big Four” them being: Bank of America, Welles Fargo, CitiGroup and JPMorgan Chase. These four banks managed 39% of the entire banking market in the U.S., because they manage such a large amount they have been deemed “Too big to fail”. The 2008 global financial crisis is essentially three interrelated financial crises; subprime lending crisis, housing crisis and the contraction of commercial lending within the banking industry.

In this essay I will be addressing the “Too Big To Fail” (TBTF) problem in the current banking system. I will be discussing the risks associated with this policy, and the real problems behind it. I will then examine some solutions that have been proposed to solve the “too big to fail” problem. The policy ‘too big to fail’ refers to the idea that a bank has become so large that its failure could cause a disastrous effect to the rest of the economy, and so the government will provide assistance, in the form of perhaps a bailout/oversee a merger, to prevent this from happening. This is to protect the creditors and allow the bank to continue operating. If a bank does fail then this could cause a domino effect throughout

Larry Summers who is an economic advisors wanted Barack Obama to take strong action against the bank, he suggested the idea of seizing a troubled bank. However, there was a divide on the ideas and suggestion among the president’s economic advisors. In Obama administration, Treasury Secretary Timothy Geithner requested Obama to take a more careful approach due to the high chance of creating a risk that would frighten off many independent investors due to the idea that the government is implement rules that will change the banks. Later, the top thirteen bankers of the nation were summoned to a room in the White House because Barack Obama wanted to have a word with them. As Obama comes in serious, the bankers are prepared to go along with what has to be done in order to fix this problem so they public can support America corporation.

Banking is designed to make it possible for customers to trade, commercialize and invest. It can be regarded as a service to serve the public and prompt the economy (Rosenthal, 2013). There has been much debate concerning whether big banks should be broken up. The collapse of five biggest investment banks in the financial crisis of 2008 has put an increasing number of countries such as Iceland, Ireland and Spain at the edge of bankruptcy (Rosenthal, 2013) and resulted in mass unemployment and a decrease in living standards. It is clear that although large banks perform invaluable functions in economies of scale and scope, providing unique services which are not accessible elsewhere, they also know they are “too big to fail”(hereafter TBTF) for bail-outs provided by governments; therefore, they continue to take excessive risks for higher compensation, which could have a negative influence on the forming of a competitive and stable market. In this essay, I will look at the causes and consequences of the financial crisis and then argue that those reforms proposed are insufficient to reduce the risks of systemic collapse; Thus, these financial sectors should become small enough to be allowed to fail so that they have to consider carefully before taking excessive risks.

There are various government structures in organizations although they are different from one branch of the government to the other. The structures help the government manage its economy efficiently. In the economy a too big to fail firm (TBTF) exists and it is defined as one that its complexity, size, critical functions, and interconnections are in the sense that in case the firm goes into liquidation unexpectedly, the rest of the economy and financial system will face severe consequences. The government provides support to TBTF companies not because they favor them but because they recognize implications for an advanced economy of allowing a disorderly failure outweighs the cost of avoiding the failure. Helping the TBTF firms enable the economy to realize high revenue. Various activities are to prevent their failure. They include providing credit, facilitating a merger, or injecting the capital of the government. The paper addresses the structures of the administration and the concept of too big to fail in financial and non-financial institutions plus the ethics involved with the theory.

Before the advent of the Federal Deposit Insurance Corporation (FDIC) in 1933 and the general conception of government safety nets, the United States banking industry was quite different than it is today. Depositors assumed substantial default risk and even the slightest changes in consumer confidence could result in complete turmoil within the banking world. In addition, bank managers had almost complete discretion over operations. However, today the financial system is among the most heavily government- regulated sectors of the U.S. economy. This drastic change in public policy resulted directly from the industry’s numerous pre-regulatory failures and major disruptions that produced severe economic and social

Bank of America is one of the largest banks in the nation. It is a multinational company and it is recognized by its high revenue value. Unfortunately, Bank of America has endured many complaints and harsh views regarding their lack of ethics. Ethical issues occur when there is a blatant disregard to implement integrity, trust, and responsibility. In some financial institutions, ethical matters are displayed in the way the consumers are treated. Within the past nine years, Bank of America has diminished all of their ethical promises by revealing customer information without their permission; discriminating against consumers based on their race; and manipulating overdraft fees in order to benefit the bank. In order to assess these problems, it is vital to recognize what Bank of America claims to stand for and determine where their most concerning issues are generated from.