By James Kwak
Last week, Charlie Gasparino reported at Fox Business that “Executives at Bank of America are coming under increasing pressure to downsize the firm as federal regulators seek to prevent large, cumbersome financial institutions from once again tanking the financial system as they did in the fall of 2008.” Later, he writes, “people close to the bank and government officials say government regulators have made it clear to BofA executives, including its new CEO, Brian Moynihan, that they want the bank to become much smaller.” The article refers to officials at Treasury and the Federal Reserve.
This would be interesting for a couple of reasons. One is that the administration and its allies in Congress are insisting that breaking up large financial institutions is not the answer to the too big to fail problem. If regulators are pressuring BofA to get smaller, that would seem to imply the opposite.
The other question is: why BofA and not, say, JPMorgan Chase, which is roughly the same size and has a similar profile? (I know BofA is bigger in retail and JPMorgan in wholesale, but basically both are big universal banks.) JPMorgan is in better shape right now and has the reputation for having superior management, but even if true those are not things you can rely on staying true indefinitely.
I’m not optimistic that much will come of this, but it’s interesting to think about. The most simple way to make BofA smaller would be to spin Merrill Lynch right back out again, but who (meaning equity investors) would buy it right now?