The idea of breaking up big banks continues to be a popular topic, including in the presidential race. Now, a former Bank of America board member has not only weighed in to support big financial institutions – he goes as far as to claim mega-banks will be indispensable for helping the U.S. weather its next downturn.
“When another downturn happens, who is going to help the government out of the jungle?” Chad Gifford told Radio Boston in an interview last week. He retired last month from the board of the Charlotte-based bank.
“When Bear Stearns got into trouble, JPMorgan took them over,” Gifford said. “(When) Merrill Lynch was tottering, Bank of America took them over. The government needs those kind of allies when we have difficulty.”
Gifford had been on Bank of America’s board since its 2004 purchase of FleetBoston Financial, where he was CEO at the time.
His tenure included Bank of America’s 2009 purchase of Merrill Lynch, a deal that resulted in a government bailout for the bank that eventually totaled $45 billion. Gifford was also on Bank of America’s board for its 2008 acquisition of Countrywide Financial, a purchase that has cost the bank tens of billions of dollars in losses.
In the radio interview, Gifford sought to dispel any notions that large banks were the sole cause of the financial crisis. While they played a role through their packaging of mortgage-backed securities that soured, “most of the origination of those mortgages were mortgage bankers rather than banks,” Gifford said.
“The problems in ’08, as far as I’m concerned, had many godfathers and godmothers, not just the big banks,” he said.
His comments come as some banks continue to face criticism that their large size poses too much risk to the U.S. economy.
Democratic presidential candidate Bernie Sanders has vowed to bust up large banks if he’s elected. On the other hand, GOP front-runner Donald Trump told Fox Business last October that he didn’t like the idea of breaking up banks.
Regulators have also chimed in. Since becoming president of the Federal Reserve Bank of Minneapolis this year, Neel Kashkari has called on fellow regulators to consider breaking up big banks as one way to prevent another major financial institution from failing. Kashkari also floated the idea of turning large banks into public utilities, by making them hold so much capital “that they virtually can’t fail.”
Gifford, though, disputes claims that the economy remains vulnerable to the failure of banks.
“In my opinion, the bank that I retired as a director from last week is the strongest financial institution I’ve ever been part of,” Gifford said, noting Bank of America’s capital levels and the quality of its loans.
If not banks, what could ignite the next crisis?
On this point, Gifford sounds more like Democratic presidential candidate Hillary Clinton, who has raised concerns about other segments of the financial sector.
“To me, the risk in the next time we have a real tough ’08-type-of-thing won’t be the big banks,” Gifford said. “It’ll be the people like the hedge funds. It’ll be the unregulated, the so-called shadow banks.”