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Wed July 24, 2013
Congress Weighs Whether Big Banks Can Own Commercial Assets
Originally published on Wed July 24, 2013 10:59 am
DAVID GREENE, HOST:
Congress is talking again about whether big banks are taking on too much risk. This time, the question is whether banks should be allowed to own commercial assets, including everything from oil and metals to warehouses and parking garages.
As NPR's Yuki Noguchi reports, the question is whether holding a vast array of assets makes banks safer and more stable, or prone to more market risk.
YUKI NOGUCHI, BYLINE: The Senate Banking Committee's Sherrod Brown, an Ohio Democrat, framed the issue this way...
SENATOR SHERROD BROWN: Can regulators or the public fully understand these large and complex financial institutions and the risks to which these firms are exposing themselves and, importantly, the rest of society?
NOGUCHI: Saule Omarova, a law professor at the University of North Carolina, says so far, little is understood. She says for most of U.S. banking history, the Glass-Steagall Act barred banks from entering into commercial business. But most of that law has been repealed, and Omarova says it's not clear lawmakers intended for big banks to move into businesses that extend far beyond the traditional loan and deposits at the heart of traditional banking.
SAULE OMAROVA: There is no evidence that Congress meant for these exceptions to swallow the rule.
NOGUCHI: What if a big bank, she argues, owns and operates oil rigs and trades vast amounts of crude oil? What if they become, as she calls them, super intermediaries in the market, controlling the terms and conditions for basic supplies that the economy needs? What happens if we allow banks that were already too big to fail to get even bigger?
Timothy Weiner told the committee he's seen what that looks like.
TIMOTHY WEINER: Mr. Chairman and members of the committee, I'm a beer guy.
NOGUCHI: As global risk manager for MillerCoors, Weiner closely monitors the market for aluminum, necessary for all those cans. He says big banks increasingly control the metal supply and the timing and price at which it's available. The market, he says, is dysfunctional. It's like going to a store to buy a beer and then having the cashier tell him to pick it up out back.
WEINER: So I go around back, present the receipt, and the warehouse manager informs me that due to warehouse constraints, I'll have to come back in 16 months to pick up my beer. He then tells me that my beer will be kept safe in storage, but that I will have to pay rent each and every day that my beer sits in his warehouse.
NOGUCHI: Randall Guynn is a private attorney and the sole representative at the hearing defending the banks. He says the other panelists are reading the past wrong.
RANDALL GUYNN: They're engaging in a revisionist history.
NOGUCHI: Guynn says banking has always had a hand in commerce, and that, in fact, that is how and why banking even began. He says diversified assets help banks maintain their financial stability.
GUYNN: The connection between banking and commodities is not a new development. It has very ancient roots. Physical commodities such as grain and salt were among the first forms of money in ancient Mesopotamia, Egypt, China, Japan, and even the colonies that became the United States.
NOGUCHI: Omarova, the law professor, shot back.
OMAROVA: The relevant history here is not what happened in ancient Egypt.
NOGUCHI: The relevant history, she says, is determining what Congress intended when it began allowing exceptions that allowed banking to trade in securities. Others suggest the relevant history is the recent financial crisis. Banks got into all facets of the mortgage business, which then magnified the downfall. The committee pledged to continue looking into the issue.
BROWN: Yuki Noguchi, NPR News, Washington. Transcript provided by NPR, Copyright NPR.