How Holder s Surprising Too Big to Jail Admission Changes Debate - American Banker Article

WASHINGTON — Attorney General Eric Holder's stunning admission that it was difficult to prosecute large banks because of the potential economic impact may be a turning point of the drive to break them up.

For years, lawmakers from both political parties have questioned why some institutions appear to be "too big to jail." But in recent weeks, the issue has gained more prominence, particularly after Sen. Elizabeth Warren took center stage while grilling regulators on the issue last month.

Holder's remarks, in which he said it "does become difficult for us to prosecute them" because institutions have "become too large" hands those lawmakers some powerful ammunition that they are likely to use to shape the debate in the weeks, months and years ahead.

"It's another glaring example that 'too big to fail' is alive and well," said Sen. David Vitter, R-La., who is co-authoring legislation to break up the big banks, in an interview. "If megabanks have a decided, quantifiable market advantage on the order of $83 billion a year, and if megabanks are so big the Justice Department, as enunciated today, will think twice and three and five and ten times about prosecuting them in a way they never would for other institutions, I think the American people's reaction to that is, these banks are not just 'too big to fail' or 'too big to prosecute' — the bottom line is they're just too big."

In a tweet to his followers, Sen. Sherrod Brown, D-Ohio, who is co-authoring the bill with Vitter, said he was "shocked by AG Holder's statement that megabanks are too big to jail."

"Laws should apply equally to Ohio community banks and Wall Street," Brown wrote.

Outside analysts agreed this helped Vitter's and Brown's cause.

"This adds fuel to that fire," said Mark Calabria, director of financial regulation studies at the Cato Institute. "I'm surprised he admitted that DOJ has been pulling their punches, which to me is a shocking admission. There's no ambiguity here."

To be sure, Justice officials have signaled these concerns before, most notably Lanny Breuer, assistant attorney general of the Justice Department's criminal division, who acknowledged last fall that he has worried about the economic impact of prosecuting large banks.

But Holder's remarks appeared even more direct than Breuer's comments and marked the first time such concerns have been raised by a top member of President Obama's cabinet. Moreover, they also seem to conflict with official administration policy, which says that the Dodd-Frank Act of 2010 effectively ended too big to fail.

"It's pretty much an admission that Dodd-Frank didn't end too big to fail," Calabria said.

While Holder is likely to receive criticism from within the administration, his comments did not appear off the cuff, either. During a back and forth with Sen. Charles Grassley, R-Iowa, Holder repeated several times that the issue was a significant issue.

"I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy," Holder said. "I think that is a function of the fact that some of these institutions have become too large."

Holder added that the size of banks "has an inhibiting influence, impact on our ability to bring resolutions that I think would be more appropriate."