At the fourth Republican debate, hosted by Fox Business Network and The Wall Street Journal, the eight presidential candidates discussed how they would improve the economy, fielding questions on topics such as raising the minimum wage, reforming the tax code and boosting economic growth. The candidates also expressed their opinions on “Too Big to Fail” and whether they would bail out banks if another crisis were to occur.
Potential Democratic nominee Hillary Clinton has stated that she would let the big banks fail if there were another financial crisis. Gerard Baker, editor-in-chief of The Wall Street Journal, asked Former Florida Gov. Jeb Bush whether he would bail out the banks.
“What we ought to do is raise the capital requirements so banks aren’t too big to fail. Dodd-Frank has actually done the opposite, totally the opposite, where banks now have higher concentration of risk in assets and the capital requirements aren’t high enough. If we were serious about it, we would raise the capital requirements and lessen the load on the community banks and other financial institutions,” Bush said, adding that increase in compliance costs have effected smaller, community banks rather than the big banks.
In a previous Democratic debate, candidates Sen. Bernie Sanders (I-Vt.) and Former Maryland Gov. Martin O’Malley have stated that the big banks need to be broken up to stabilize the financial system.
Neurosurgeon Dr. Ben Carson was asked to weigh in on whether the big banks should be broken up.
“Well, I think we should have policies that don’t allow them to just enlarge themselves at the expense of smaller entities. And certainly some of the policies, some of the monetary and [Federal Reserve] policies, that we’re using makes it very easy for them, makes it very easy for the big corporations, quite frankly, at these very low interest rates to buy back their stock and to drive the price of that up artificially. Those are the kinds of things that led to the problem in the first place,” Carson replied.
Carson added that breaking up the big banks wouldn’t help the problem, instead pointing to the “stampede” of regulations.
“I don’t want to go in and tear anybody down. I mean, that doesn’t help us,” Carson said. “But what does help us is stop tinkering around the edges and fix the actual problems that exist that are creating the problem in the first place.”
Sen. Marco Rubio (R-Fla.), who has called for the Dodd-Frank Act to be repealed, argued that big government is the reason banks have become so big.
“The government made them big by adding thousands and thousands of pages of regulations. So the big banks, they have an army of lawyers, they have an army of compliance officers. They can deal with all these things. The small banks, like Gov. Bush was saying, they can’t deal with all these regulations. They can’t deal with all — they cannot hire the fanciest law firm in Washington or the best lobbying firm to deal with all these regulations. And so the result is, the big banks get bigger, the small banks struggle to lend or even exist, and the result is what you have today,” Rubio said, asserting that the Dodd-Frank Act has codified “Too Big to Fail.”
Sen. Ted Cruz (R-Texas) said that he would not bail out banks that fail, even when moderator Neil Cavuto asked if that meant “that millions of depositors would be on the line with that decision.”
“So let me be clear. I would not bail them out, but instead of adjusting monetary policy according to whims and getting it wrong over and over again and causing booms and busts, what the Fed should be doing is: No. 1, keeping our money tied to a stable level of gold, and, No. 2, serving as a lender of last resort. That’s what central banks do. So if you have a run on the bank, the Fed can serve as a lender of last resort, but it’s not a bailout. It is a loan at higher interest rates. That’s how central banks have worked,” Cruz said.
Ohio Gov. John Kasich was the only candidate to come close to saying he would bail out a bank that was failing. In an attempt to appeal to the audience, Kasich tried to stress the need to protect depositors who put their life savings in banks on the brink of failure.
His comments, however, received boos when he tried to categorize depositors as those who can “afford” a failure and those who can’t.
“I would not let the people who put their money in there all go down,” Kasich said. “As an executive, I would figure out how to separate those people who can afford it versus those people, or the hard-working folks who put those money in those institutions. ... Here’s what I mean by that. Here’s what I mean by that. When you are faced — when you are faced, in the last financial crisis, with banks going under — with banks going under, and people, people who put their — their life savings in there, you got to deal with it. You can’t turn a blind eye to it.”
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