As a presidential candidate, Jon Huntsman proposed a six-point plan to address the critical and important problem of banks that are too big to fail. Now that he has left the race, there is no presidential candidate with a plan or even with an obvious interest in addressing this vital question. The Alternative Banking Working Group of Occupy Wall Street believes it is extremely problematic that this issue is being ignored, and urges every presidential candidate, including Barack Obama, to propose their too big-to-fail plans for review and for debate. In the weeks and months to come, presidential candidates on both sides of the aisle should make explicit plans to set up appropriate firebreaks in the financial system to protect taxpayers. We’d like to take a moment to comment on Huntsman’s original plan, which is a good start. It sets a cap on bank size based on assets as a percentage of GDP. While such a cap could constitute a step in the right direction, it remains an inadequate solution unless other significant issues are addressed. Since Huntsman’s plan does not consider the impact of derivatives, implementation of his plan could lead to banks with limited hard assets and bloated derivatives books.
We propose that the plan also include caps on risk, as measured by various metrics involving risk models. To guard against manipulation of these models, we believe that the risk models should themselves be measured against a periodically changing series of benchmark portfolios – an idea also proposed by Vikram Pandit.
Next, we have three topics to add to Huntsman’s plan, namely the opacity of banks’ portfolios, the interconnectedness of banks, and the fact that markets themselves, like money markets, can be too big to fail and can lead to government bailouts at the taxpayer’s expense.
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