Romney made a good point about the Dodd-Frank financial-reform law, e.g. that it enshrined five big banks as “too big to fail.”
This point is correct in that the law allows the Financial Stability Oversight Council (FSOC) to designate Systemically Important Financial Institutions (SIFIs), including the nation’s five largest banks.
The implication is that the government will be responsible for ensuring that they don’t fail, so if they do fail, it is the government’s fault, and the government would have to make up for that. This issue not just domestic, but one of foreign policy.
To wit: right now, we see Europe devoting tremendous sovereign resources to help Spain bail out its banks. If Europe is taking this tack, it expects America to do so if and when it is necessary in the future, and the Dodd-Frank law does not discourage this thinking.
It is surprising and gratifying that Romney, who doesn’t often mention Wall Street, brought up the financial system largely on his own and got into a little bit of detail.
Romney should make his point into a big speech about what it means for capitalism in general to have a financial system that is immune from market discipline.
His point about people not starting banks in their garages, though, is less promising. We need more small start-up banks, and there is no reason good regulations could not encourage people to start one-branch banks to grow and compete with larger banks. Otherwise, we have an oligopoly in finance.