JP Morgan may hear break-up talk in the health debate

Font Size

Print

Feedback

Email

Discuss

• Discount UK Shopping

Related Articles

Job loss pain crosses boundaries, sectorsAll that Goldman Sachs outsiders don’t get

: David Reilly

Investors in the US are wondering just how far Congress will go toward breaking up big banks. The answer may depend on the outcome of the health-care debate. If they fail to overhaul health care, Democrats will face the 2010 midterm elections with little to show for their time in power other than a high unemployment rate, unpopular stimulus spending and a flub of their biggest legislative priority. Meanwhile, Wall Street will keep earning huge profits thanks in part to rock-bottom interest rates.

That may turn banks into an even juicier political target, especially if financial-reform legislation hasn’t passed by the end of the year. What better way for Democrats to deflect populist anger than to collect a big-bank scalp, or ratchet up the pressure on Wall Street well beyond legislative proposals now on the table. If they don’t, Republicans will take up the cudgel, figuring the Main Street versus Wall Street play offers electoral rewards. Congress is already considering proposals to give regulators new powers to dismantle even healthy financial institutions that pose a risk to the economy. An amendment to this effect was adopted by the House Financial Services Committee as it weighed its version of financial reform legislation.

This puts a bulls eye on members of the too-big-to-fail club such as JP Morgan Chase & Company, Goldman Sachs Group Inc, Bank of America Corporation, Citigroup Inc and possibly Wells Fargo & Company and Morgan Stanley. Other proposals have gone even further. Senator Bernard Sanders, a Vermont independent, earlier this month unveiled legislation that would require the Treasury Department to break up too-big-to-fail institutions.

Such talk has clearly rattled the big banks. JP Morgan Chief Executive OfficerJamie Dimon last week penned an opinion piece for the Washington Post arguing that when it comes to banking, big isn’t necessarily bad. “Ending the era of ‘too big to fail’ does not mean that we must somehow cap the size of financial-services firms,” Dimon wrote. “Global economic growth requires the services of big financial firms.”