One of America's top financial regulators
has suggested that Wall Street institutions should be banned from
calling themselves "banks" in an effort to clear a fog of confusion
about the word in both political and consumer circles.
Bair, chair of the Federal Deposit Insurance Corporation (FDIC),
suggested that only commercial deposit-taking institutions, where
customers' cash is safeguarded by a guarantee, should be permitted to
describe themselves as banks.
"Everything gets called a bank
these days," Bair told the annual conference of the American Bankers
Association. "Wall Street firms, mortgage firms ... Maybe there should
be some legal constraints on who should call themselves banks – maybe
only FDIC insured institutions should have that label."
definition would exclude the likes of Goldman Sachs and Morgan Stanley,
which do not take consumer deposits but often describe themselves as
investment banks. It would also leave out thousands of "mortgage banks"
that typically act as go-betweens linking consumer and secondary
An annual gathering of banking chief
executives, held in Chicago this year, has been greeted with protests
organised by unions furious at irresponsible lending, home foreclosures
Several hundred demonstrators wielding placards
with slogans such as "stop robber barons" and "hold banks accountable"
rallied outside the Sheraton hotel, where the financial bosses were
gathering. Amid tight security, activists tried to get into an opening
drinks reception on Sunday evening but were kept back by police.
Protests were also staged at the Chicago office of Goldman Sachs. The
American Bankers Association includes JP Morgan Chase, Bank of America
and Citigroup. But it argues that the majority of its members are
community banks which should not be blamed for the ills of Wall Street.
"The financial crisis
is unfortunately often referred to as a banking crisis," said Edward
Yingling, chief executive of the association, adding high-profile
failures such as AIG, Lehman Brothers, Fannie Mae and Freddie Mac were
More than 100 smaller banks have been seized by
regulators in the US this year, with the FDIC stepping in to safeguard
customers' deposits. Many industry regulators argue that large
institutions, too, should be allowed to fail rather than being bailed
out by the government.
Bair said the concept of banks becoming
"too big to fail" had become a moral hazard following aid to keep firms
such as Citigroup and Bank of America afloat, and that the government
ought to develop a way of winding down unviable firms in a sensible
manner. She added that there was a growing political consensus between
Republicans and Democrats on this.