 economics debate, the annual economics debate, in just a minute I'm going to introduce Nathan Nislitz who is the president of the American Economics Club and will be the emcee of today's event. Before I do that though, every debate, every activity that we have here involves a lot of people doing a lot of work, so I first want to thank a few people. First of all, thank Kevin Crocker who's the undergraduate, a program director who's been working with the debate teams and working out the logistics for this. Thank you very much Kevin. And I want to thank two people who've done an enormous amount of work to put all this together and make it happen. Nicole Dunham who's the chair's assistant in economics and Judy Fogg who's the administrative manager here at Terry who always walks out of the room just before I name her. So let's give Judy Fogg a big clap. All of the economics alumni board members who came up here today, three whom I'll introduce in a moment that we're going to be the judges. The judges this year are Richard Allen. Today is over, we're going to have a reception and this year our reception is in order to thank our alumni board members who have been very devoted members of our alumni for a number of years now. One of our members that was leaving before the reception, so I want to honor him now before he leaves to catch a plane. Alumni board has been in operation not for about, we decided what was it, 16 years? And one of the founding members and the founding chair of the alumni board for many many years who really poured his heart and soul into it and is still doing so is Stu Tovan who came all the way from Baltimore. So we've got Stu a little certificate here. Yeah that's why we're doing that. We wanted to do a graduate fair and very proper here. Stu Tovan class of 81 and not only that a teacher which is a new t-shirt that you can wear in good health about our debate to give to fail. Know why you're selling the curve on the board? No that's out now after the crisis no more I say. Thank you very much. We're going to introduce Nathan Nichols who will describe the ground rules and the structure of the debate. Nathan, thank you very much. Thank you all for coming to the sixth annual undergraduate economics debate. The title for this debate is it gets more and more interesting and relevant as we're preparing. We're deciding what to do early in the early in the semester. We're thinking what would be the best given economic climate and what we decided on is should too big to fill banks be allowed to exist? Obviously I want to thank Rob for coming up with this Rob Nassi, he's a U.C. officer. This was his idea so thank you very much. The debate is as follows each member has seven minutes to defend their south and then the other team each member has seven minutes and then we go on to the rebuttals section where each person has up to five minutes it probably will be more or more around three minutes per person for their buttals and then we'll be Q&A from the judges. So I guess I would before I'd like to thank Jerry for all his hard work in setting this up for us. Thank you very much. He already thanked everyone else I wanted to thank but when I reiterated the call thank you very much and thank you very much. Along that thank you. So I guess I'll get on I'll get on to it. I want to introduce the debaters for claiming that banks should not be allowed to be too big to fail. We have United States of Wilson, Sir Edward Kangaroo, Peter Kearns, and Jimmy Gatton on the opposing team saying that banks should be allowed to be very big. We have James Chim, Hitler Kearn, other events, and Josh Sloop. So I think that's all I have here. Without further ado, thank you very much and let's start the debate. Good evening everyone. So, too big to fail. How can someone determine if a bank is actually too big to fail? I think what we should do is to take a look at the bank size. So in reality we're making a comparison between large banks and small banks. Before I go further I'm sure you guys remember the fight over Microsoft back in the late 1990s to early 2000s. The federal government was trying to break up Microsoft into two companies because they felt that Microsoft had too much power and influence over the market. You might ask how did Microsoft get to this point? Well, the primary business was selling an operating system called Windows. However, according to pbs.org, Microsoft also dealt into the browser market with Internet Explorer and they started supplying this to consumers for free along with the operating system. In short, Microsoft was doing more and more and acquiring more market shares but going into different businesses. Now, if you don't see the links between too big Microsoft and too big banks, I'd love you to make that connection. The big banks became big not just because they were getting more customers and less increasing their revenue. They became too big because they ended up having their hands on too many different markets. Many of these banks are referred to as universal banks and it is when they get into markets that they don't specialize in that they take on high diversity behaviors which expose them to financial troubles in the long. The best purpose in doing this is to take on more risk in exchange for bigger shares. Also, transaction fees brought them an increase in revenue so it was only their incentives to increase transaction on a daily basis. If you look at this graph, it is a graph for risk versus expected return and risk is measured in standard deviation on the x-axis and the x-axis and the y-axis and the high-decedent deviation has the higher risk, the higher your expected return but in order to get a high expected return since you have to increase risk, it also corresponds to the fact that increasing risk makes it more less likely for your investment to be returned to you. So that's the tradeoff. Now, let's get this straight. Arguing that a bank is too big has little to do with how much revenue they generate or how much they access their own. Although sometimes they may be able to go hand in hand, in general, it has little to do with it. And I would like to add that this part is my own basic analysis on too big to fail based on four years of studying economics and financial markets. Anyway, too big to fail has little to do with money. Directly, you can have a bank that has $100 billion assets, however, if the actors don't check it as a market in such a severe manner, the bank is considered small. A too big to fail bank is one that if allowed to fail will have an adverse effect on that economy. If some reason the bank with the $100 billion assets have most of the assets about, let's say, 60% in non-U.S. markets and 40% in U.S. markets, they will not be too big to fail because their risk will be so diversified and the market crash will not have hurt them as badly. Even if the market crash have hurt them badly with that strategy, letting them fail will not specifically hurt one country over the other. The assets that defaulted will be spread out over many different countries and this would leave just one area safe, the U.S. probably unemployed or misfortune to the black-winged bank. Now you might look at me and say and say that you disagree because that was just my own analysis. Well, before you do that, let me fill you in on what I was able to find was supposed to happen. According to the Property, Casualty, and Shirts Association of America, systemic risk refers to the likelihood and degree of negative consequences to the larger world. And there is more and here is my original analysis in their own words. With respect to federal financial regulations, the systemic risk of a financial institution is the likelihood and the degree that the institution's activities will negatively affect the larger economy such that an unusual and extreme federal intervention will be required to ameliorate the effects. Furthermore, according to the Federal Reserve Bank of Minneapolis, government intervention of a bank needs to pass a cost-slash-benefit test, meaning that if a size of a failing institution is such that its downfall could lead to severe spillovers toward the financial system and ultimately the real economy, then the cost-slash-benefit test has obviously been passed. Lastly, the FDI CIA requires a series of steps before too big to kill rescues of institutions can occur. These are the three steps. One, the Secretary of Treasury must find that least-cost resolutions would have serious adverse effects on economic conditions and financial stability and that the provisions of actual legal insurance coverage would avoid or mitigate such adverse effects. Obviously that's the most important we are. Two, the Treasury Secretary must consult with the President in making this determination. And three, two-thirds of the governors of the Federal Reserve System and two-thirds of the directors of the FDIC must approve it. The idea of a huge bank regulation is an oxymoron. Big banks have political power and can influence regulations. Look at Goldman Sachs's example, former chairman and CEO Henry Paulson served as the United States Treasury Secretary. Do you really think that he never once had Goldman Sachs on his agenda as Treasury Secretary? Another reason why regulation alone might not work is because you always have institutions which are not part of banks, also known as shadow banks. Yet you post it not to them so that they will escape the regulations just because they're not classified as banks. We're very serious with AIG. To summarize everything, big is not a number mentioned in dollar amount. We're not arguing that we need a bank to be so small in terms of asset size because then they won't be able to compete in a global market. We want our banks to be competitive internationally, let's say Canada. However, we do not want the banks to be big in a way that Treasury and U.S. economy and people arrive. Thank you. I would now like to introduce my teammate, Anastasia, who will elaborate further and go into specifics on some of the things I've already mentioned. A two-bill number or an amount of assets are a specific threshold. But rather a concept of whether or not the failure of one institution could potentially reverberate throughout the entire economy and ultimately affect the economic well-being of nature. From that standpoint, it's still important to consider just how large financial institutions grew leading up to the 2008 crisis and to analyze why this happened. It is also important to look at what risks were assumed when banks began to control such a large portion of the economy and took on an enormous portion of the market share of the banking industry, became highly leveraged and interconnected to one another. To support our argument that too big to fail banks are too big to exist, I'm giving it evidence as to why unfettered large banking institutions will inevitably grow larger, take on excessive risk, and then create situations like the crisis in Baylor. As we already discussed over the past decade or so, banks have grown to hold an enormous portion of the wealth of the United States. Around 40 percent of total deposits in the U.S. during the summer of 2007 were held by five large banks. The graphic up here shows how the increase in an amount of banks size over GDP has occurred since 1995 of the industrial crisis. These five banks then were more left in control of a large portion of the economy and the financial sector. This is important because as a nation that runs on credit, everyone's affected by this. Students, farmers, bankers, carpenters, and everyone in between. So what allowed banks to get so big? How are they able to accumulate so much wealth and profit and become so over leveraged? There are many explanations given to this having to do with deregulation, misaligned incentives, and just plain greed, but there are also economies that as to why banks will definitely grow to be large and over leveraged. Banks can accumulate more and more wealth and a larger market share in the banking industry. Then they are able to borrow from investors and from each other at more or less a discounted rate when they're smaller counter parties. As a communist dean-maker from the Center for Economic and Policy Research who recently noted in the Boston reveal, with the history of bailouts with protection from the FDIC, large banks are implicitly too big to fail. For example, in 1984, the US government bailed out the Continental Illinois National Banking Press. At the time, this was one of the largest institutions in the country. Shortly after, during the savings and loan crisis of 1989, the government continued to hand bailouts to the financial institutions whose investment type collapsed. Investors are aware of this, and therefore they're willing to throw their money at these larger firms, knowing that it's more or less secured by the government. While the American public may have short-term memories about implicit government guarantees, the banking industry certainly does not. This implied safety net allows banks to grow larger and larger, and even make some peers safer than they really are. Banks that can profit and grow will then become inevitably become larger and more leveraged. Though it is agreed that profit and growth or it is agreed by many economists and legislators that capital requirements are not enough to regulate big banks, it remains astonishing that leading up into the crisis, banks held such ridiculous leverage ratios as seen in this graphic. What this shows is assets over equity, and some of the largest banks in the U.S., likely in front of the enrollment tax, held ratios such as 31 to 1 in 2016 to 1. These numbers are from 2007. However, seven years prior, the New York Federal Reserve had released a study that showed that high leverage ratios like this are a pretty good indicator that a bank will eventually fail, and they're just as good of an indicator as some of the complex risk-related ratios and calculations. The growth of banks in and of itself is not necessarily bad. Banks can potentially post-regard profits and reward their shareholders and keep them how they turn their investments in loans. But when banks become increasingly leveraged, a problem the risk-probability distribution of risks. Research shown by the Economist at the Cowell Foundation for Economic Research has shown that as banks increase their leverage, the probability distribution of risk takes on the growth of heavy tips. This means that instead of centering risk to a steady accounts return at a mean expectation as shown in the red line, which is a normal distribution, risk ends up being spread out with higher probabilities of gains as well as losses, like gambling. The distribution is responsible of course for some of the rugged profits that banks previously experienced, but it also contributes to the volatility in banks and the simultaneous losses and potential failures of the entire industry. Small banks forever can't become so leveraged because they don't have these because it guarantees only guarantees for the consumer by the FDIC. Simultaneous is an important concept to consider when reasoning why big banks are too big to exist and will inevitably fail. As banks grow larger, they also become more interconnected to one another, since with few banks around, they have no one else to trade or have it exactly. The figure on the slide shows a graphical representation of banking connectivity on a global scale. Each node represents different banks from different countries and the weighted line shows their level of inter-connectedness. The analysis was done for sidelines being back in 2010 just to show how interconnected our global financial institutions are. When large banks are able to develop such complex transactions between each other, like a credit default swap or a collateralized debt obligation, they end up taking on each other's risk. When something goes awry, it then can occur simultaneously and sustainably. Simultaneous and systemic gains are good, we call us a boom, but simultaneous and systemic failures whose own crisis which affects much more than just bankers, as the effects are seen through unemployment, economic confidence, and eventually demand within the entire company. This situation then only allows them from banks to be too big a fail and in essence it forces the government to have to bail out banks in order to avoid detachment. If it were possible to regulate large banks, then too big a fail problem could be avoided in the first place. However economists like James Crack have pointed out that regulating large firms is nearly impossible. As Peter will explain in more detail, regulation of large institutions doesn't always work. In short, large banks inevitably become too big to fail, too big to fail. Their ability to grow and increase leverage simply by being large and the increased risk that is assumed by such growth creates conditions for failure and systemic risk for the entire company. Limiting bank stocks can then limit the risk that the entire economy takes on us. Now Peter will continue to discuss the political and economic arguments against large banks. Thank you, Anastasia. Banks have transformed over the past few decades into multi-functioning, multi-purpose institutions. These institutions have deliberately created markets in which they like the ability to trade, invest, and securitize financial institutions. Financial instruments dangerously with little or no regulation due to their exact size. The history of our banking legislation shows that how big banks have given this opportunity and how this issue has evolved to a major concern. Banks deemed too big to fail also have the intrinsic ability to alter legislation as a result of their enormous profits, making them a liability to our economy. The legislation concerning large banks failures has created a system where banks can participate in volatile and risky ventures because of the underlying security provided by government bailouts. One institutional example that highlights this is the Federal Deposit Insurance Corporation, which has the ability to assist billing banks through loans or direct federal acquisition of assets. The FDIC ensures deposits in over 8,000 institutions nationwide and is responsible for overseeing the safety and sadness of these depository institutions. They are, more or less, the receiver of failed banks. Thomas Honig, President and CEO of the Kansas City Fed, argues that the FDIC's ability to prevent bank bailouts is insufficient. He states in an interview, the FDIC's resources and other financial industry support funds may not always be sufficient enough for this task that is the bailout and that treasury money may be needed. Honig is arguing here that when a big bank proves to be insolvent, the FDIC may not be able to support these crashing giants, and taxpayers will have to pay the cost of the bailout. Now, prior to 1950, excuse me, now, prior to 1950, insolvent banks were, for the most part, a lot of fail. Federal regulators dealing with the bank, dealing with the bank, made banks liquidate their assets to refund depositors, or sold the bank to another banker firm. However, we now have a system that is instilled in pseudo-safety net for large banks. The idea, if the big bank fails, no worries, the government will bail them out and taxpayers will pay the cost. The reason banks have grown to a size where they cannot fail, they rely too heavily on each other, they control too much or too many of our deposits, our loans, and our investments, and the failure of any of these banks would result in a catastrophe for our economy. And now, it is for this reason exactly that banks too big to fail have been able to pursue highly profitable, yet highly risky ventures. As you can see, the FDIC, the same corporation originally intended to oversee the safety and soundness of any risky activities of these depository institutions, now protects these big banks from failures. Multiple laws have been refurbished to allow for less regulation and failure protocols for big banks, creating perfect environment for banks to participate in risky behavior unbeknownst to its depositors and investors. We propose a reenactment of the Glass Steel Act of 1933. This will prevent, this will separate commercial investment banks, limiting them in their size and decreasing their activities. The renovation of the Glass Steel Act will forbid banks to underwrite securities and will allow profitable entry for potential entrants to start new banks and thus decrease the market shares of some of the biggest banks, such as Citigroup Bank of America, JP Morgan Chase, etc. This reenactment will commit us to the Financial Services and Modernization Act of 1999, preventing dangerous mergers, limiting the banks' market operations and their ability to undertake risky activities. Now, another mechanism large banks have used in an effort to loosen regulation is through lobbying. Even if regulation is at a point where banks are constrained from risky transactions, banks too big to fail have the ability, the funds, and the power to sway bank legislators and keep existing regulatory banking laws. This gives large banks the perfect and all the room necessary to pursue one of the most risky and highly controversial ventures, known as credit derivatives. Now, even if, I don't know, excuse me, in her book, Fool's Gold, Jillian Ted explores the kind of political influence big banks have as a result of intensive lobbying. In 1985, at a threat of break of higher capital reserve requirements for derivatives, bankers from Salmon Brothers, Goldman Sachs, JP Morgan, and others created the International Swaps and Derivatives Association. This was a direct result because credit derivatives came under attack from regulators and the Futures Trading Company, who were astonished to learn that the size of all these elaborate derivative contracts had grown to 865 billion by 1987. Seven years later, in 1974, four anti-derivative bills were presented to Congress because of the potential volatility and risk attached to these derivatives. In response, the ISDA launched one of the largest lobbying campaigns in Washington, and, on the hold, at the end of the year, all four bills were abandoned because of the extraordinarily effective lobbying campaign on behalf of the ISDA. Now, while the ISDA did an incredible job reducing regulation and overturning proposals, it must be understood that these banking behemoths that founded the ISDA had as much money and funds as would ever be needed to launch such a significant campaign, which is why excessive lobbying by banks too big to fail is hazardous to the safety of our markets. Now, we are not implying that banks need each bar in lobbying. Instead, we are showing that when these large banks are big enough to change laws, that they will hinder the safety of our deposits and investments, and this is when big banks present big problems. Banks too big to fail have manipulated our nation's legislation and regulation on banking and created the impression that they are smart enough to cover any liabilities associated with their transactions. Too big to fail has led me to question not only the size and influence of big banks within the financial market, but whether or not big banks have become so big that they can alter the rules and laws which they must abide to. Being that big presents even greater threats to the citizens of this nation and the well-being of our economy. So, in conclusion, should we allow banks to become too big to fail? No, because that means too big to fail it's too big to control, it's too big to exist. Thank you. Seats in the bank are insured by the FDIC, but only up to a certain amount. So, if the bank fails, that's all you get. In an too big to fail situation, the negative consequences of just leaving it at that are so great that special procedures are taken to cover all uninsured deposits as well. When too big to fail is invoked, regulators have decided it is more prudent to have tax payers for some of the costs rather than when insured deposits. Why not just make things small enough to avoid such things? That is one solution, and it's not the only one. We believe that banks should be allowed to grow up for these reasons. First, sizes are relevant in cases, that is, small banks fail too, and as history has shown us, the liberation of small bank errors is just as bad as a large bank failure. Second, if we deny big banks the right to exist, we miss out on the benefits of having big banks. And third, we submit that regulation, particularly with the shadow bank system, which was really important. In the savings and loan crisis, there was a massive systemic failure among savings and loan institutions. So much though, that the cost could not be borne by healthy banks in the form of higher insurance payers. So the tax payers had to be able to survive. Having many small banks fail is no different from having a large bank. It's all proven pornographic. 37 out of the 209 bank failures since 2008 have been in Georgia. Described as small banks in Georgia were chief offenders in the private bonus period. It also points out that Georgia lacks sufficient legal protection for consumers and imposters. But in Georgia, the FDIC rescued all the small banks, and nationalized them in order to protect their deposits. These were banks many orders of magnitude smaller than the giants that too big to fail under them. But clearly, they all needed to be saved. Individually, they were not too big to fail. Collectively, they were too big to fail. Imagine we did do it with banks, and we're left with only small and mid-sized institutions. What happens if in other systemic families, the savings and loan prices are changed? Well, we would have to bail each institution out, and then, like they probably meant, regulate the activities that the banks were doing in the first place. But wait a minute. If what banks were doing is the problem, why not just regulate that? It's very important to note that the banks in Georgia failed not because they were overexposed to complex derivatives, while the financial instruments, but rather, they simply made a lot of loans. If you are officially forced banks to be small, it will soon offer identities and services. If we restrict them in this manner, we'll start moving together and start making the same mistakes. Having a large portion of small banks behave in the same way, as in the case of Georgia, is no different than a handful of big banks doing the same thing. The herd mentality that will rise if you force banks to be small and be just as dangerous is allowing a handful of big banks to exist. The major reason we need big banks is to compete against foreign big banks. In the 1980s, it was the massive Japanese banks that were going to have the massive European banks. If we suddenly break up our big banks, who's to say that one of those banks won't move in and take their place? More importantly, if we've been in too big to fail and no one else does, what is that leading us? Who would want to put their money in American banks with a no-government guarantee? Clearly, American banks would appear much more easily. Large depositors would certainly shift their deposits to the safer foreign banks, and the result would be a sharp drop in value for all of those capitalists in the country. Why not create an international product to abandon too big to go? All of these. Politically, obviously. So unilateral abandonment, too big to fail, but not behind it. Returning to Georgia, it's important to know that the majority of capital of banks that are overraising is not from depositors, but rather from outside investors. This is precisely what happened in the savings and loan prices, and it's precisely how shadow banks operate. Banks like Goldman Saunders have noticed that big banks, rather, they take all their money from short-term developments in the money market. Since they do this, they don't have any reserve profits. The problem is that since they're not subject to the same relations, they can have much higher livelihood ratios. Thus, at any given time, they'll have a smaller amount of liquid assets with which to pay back their investments, because all of their assets are probably with long-term assets. Plus, they don't have any assets that can't pay back the investors in the money market. They must raise that money in the money markets, because all their investments go on. It would be foolish not to think that the size of institutions involve matters significantly in the businesses. However, as in the case of Georgia, when small banks are all behaving the same way and over-exposing themselves to risk, you end up with the same situation as a large bank. Clearly, the problem is not the size of the institutions, but in how we do or do not regular them. After all, if the banking system is the sum of its parts, and if all its parts are exposing themselves to the same risk, and does it really matter if any one institution is larger than any other, is there something really wrong in all banks and the entire system? I would now like to introduce my colleague Hovey Hans. I'd like to discuss the benefits we can create with banks. Banks with large amounts of assets are perfect for many economies of scale. These economies of scale are the cost advantages that the business can obtain through expansion. There are certain factors of production that cause and produce those average costs per unit to fall as they expand. These economies of scale exist for almost all types of businesses, including banks. We can find huge economies of scale within these infrastructure banks. It doesn't matter if we have a branch network of 10 branches, or 1,000 branches. Both networks require the same basic facilities. One would be the same type of computer systems for accounting or a human resource infrastructure to run a big system and a smaller system. A perfect example of this would be retail banking. In retail banking, you have to design proprietary server-based cloud computing operating systems to deliver data and applications to both your clients and your employees. In addition, they have to maintain robust security, encryption, and protection software to protect this data. And the important distinction to make here is that these larger banking systems don't inherently have more risk. They actually have less risk because their business is diversified geographically. It would be less acceptable to say localize recession or regional recession. So if you split this one big company into 100 companies, you would deny them these economies of scale, but it would not remove systemic risk, which is the problem. It's a small interconnected world, and that is not going to change. Systemic risk will exist with smaller banks. Another place big banks find economies of scale is in hedging costs. All major banks are market makers or dealers within bonds, markets, currencies, derivatives, commodities, and other equities. What does it mean to be a dealer? Dealers can have given security or ready to buy and sell the security at their account for publicly co-sponsored bid-ask prices. Deals need to hold inventories in these securities so that they can trade it, but they're also exposed to price movements if the price of the security is going to change. But huge investments are required to manage different types of risk, and they're constantly changing levels of exposure. This is very capital-intensive, especially when you're dealing with fixed income products. The bigger the bank is, the more markets they can deal with, and they can reduce the exposure in this way. This way, big banks can find economic efficiencies in hedging thoughts. But another place where they can capture efficiency is in order flow. The larger a dealer's order flow is, the more trades they can match internally. Say a broker gives them some trades, some orders to buy the security and to sell the security, they can match them all together, and they can reduce their exposure to sharp price movements because they don't have to get the trade by themselves. A lot of the financial industries in Germany over the last 15 years is the race to capture this order flow. In front of having huge market makers ensures liquidity in capital markets. As stated, dealers are willing to buy and sell securities right away at publicly quoted bid-ask prices. So this will reduce barn costs for investors. This is important because investors are more likely to buy a bond if they know that they'll be able to quickly and easily sell their position later. As expected, investors will hire yields for illegally bonds. The benefits of having these market makers was going to be passed down to businesses that are able to borrow in the capital markets at a lower cost. And the investors will enjoy reduced transaction and higher returns. Lastly, big banks are more competitive in the global marketplace. The core of financial activity depends on reputation, information networks and the ability to make markets and trade on them. The size of a bank becomes critical as it's competing against an increasingly globalized market place. If we limit the size of our banks, they'll struggle to compete when facing off with the larger competitor of rock, such as the European banks. Smaller banks will struggle without these benefits and they'll have declining products. Many businesses in the nation need sophisticated and complicated products in order to be successful. To offer these services, banks need to have large amounts of capital. For example, many large international corporations have the need to raise money in countries like China and other foreign markets. To services growing need, a bank needs to raise money in these markets so that they'll be able to conduct business product. It would be better for American banks if this business went to them, as opposed to foreign banks. But to do so, we need to have big, successful, profitable, sophisticated banks with a lot of capital. By limiting the size of our banks, we're limiting the size of their profits because we're limiting where they can compete in and what products they can offer. But if you're a diesel client, I would like to introduce my colleague, Rick LeKert, who will talk about systemic risk and how he manages it. Prevention, prevention, prevention. Public outcry is an all-time high concerning the financial industry when something has to be done. No system to control such a large amount of capital in the world should be at a risk of failure is a known fact that investors will make a life, will always over extend themselves during good economic times in America and is inevitable that when bankers see investment profits, the higher risk can be easily overloaded. But to fully understand the required regulation, future of big banking, we must be fully able to understand specific failures of the massive firms like Bear Stearns, Union Brothers, AIG, Quashier Mutual, that created so much public outcry. The first of the collapse banks, Bear Stearns, not surprising a hell of a reputation as the biggest risk taker, yet despite the risk of behavior was actually extremely successful bank since their founding all the way back in 1923, which excludes over 80 years of successful banking. Yet this recent recession completely took decay in bankrupting Bear Stearns starring the largest financial collapse known in American history. It's important to note that Bear Stearns in the massive fixed asset department focused on mortgage-based securities. Now, mortgage-based securities are a type of revenue that combined giant international market and mortgages into a similar investment tool for large banks to create even greater incentives for the smaller mortgage company. To grant as many mortgages as they could resulting in a large amount of mortgages that maybe shouldn't have been granted to them and one generally wants a house. In addition, since September 11th an increase in money supply made these mortgages that much more attractive to grant. Now, the years prior to this financial collapse worked back securities with the best way to make a large profit. Nowadays, there are known to experts as a toxic assets since they are practically destroyed in the American economy. Not surprisingly, Bear Stearns had a massive percentage of their investments brooding to these mortgages leading to their open demise in 2008. But now, the question remains, how does our government in the future more effectively recognize the speculative bubbles and of the authority to prevent them from becoming too big? Well, a few effective and intensive solutions include an insurance firm completely supplied by these risk-taking banks that will not only it would be only used when the banks face bankruptcy like that during 2008. This will put increasing pressure on banks to prevent failure without having the government and the average non-investing taxpayer to be their safety end. This will allow banks to be technically too big to fail but the mechanism allowing them to fail to be their own money at work. Now, point solution number two. We start with J.P. Morgan Chase one of the largest financial institutions that happened to survive this financial disaster at their only loss in 2009 in the 2.2 billion of 2.2 billion dollars in their credit card markets. Another more controversial regulatory measure would be an independent consumer protection agency. This new government department designed to detect and educate consumers who would be taken advantage of by credit card loans, mortgages, and other predatory financing. This would be necessary simply as a counter force against the financial institutions that prey on unsuspecting Americans that desperately need financing. This could be necessary skill. Although many people think financial literacy should come from consumers' own initiative, preventing average Americans from paying bankruptcy would be another force to help prevent future financial collapse of large banks. The third point of solution starts with now the security exchange commission, the SEC, in the office of the Comptroller of Courage. Both other jurisdictions who can regulate risk in the financial sector. But experts after this recent disaster feel it needs to be a new organization labeled at a systematic risk regulator that could reside a part of the better reserve or be impeded. Now this systematic risk regulator would directly address asset bubbles as well as create new stronger capital requirements for large financial institutions, especially those marked as tier one or the banks that tarp failed out. Also, these higher insurance premiums will also be set by this new organization as well. Those are three effective solutions to say the least. Now in conclusion me and my colleagues have had a multi-faceted argument covering all aims. Our key points just explained in detail include to the same computer systems bank bureaucracies many other aspects explained by a bank. Large banks benefit from a massive advantage due to scale. Large banks allow large investments from equally large international corporations. Successful economies of this day and age must be able to have a large amount of capital quickly around the world. Small banks cause financial problems. Point number two beef small banks cause financial problems as well. That could amount to the global crisis just the same as large banks do. Point number three Giant foreign banks it's to be aware of example Japan, Germany, Sweden, Canada, Great Britain would have a massive advantage over our forces to be small banks. Point number four Part of the past crisis is due to economic cycles that have incurred to the entire 20th century and have been recognized by the most basic economic teachings to be inevitable. And a final point which I guess explains the current administration and senate are working diligently on a new regulation that will be sure to prevent anything like this problem from happening again. Therefore large banks are entirely unnecessary in America. It would be a huge mistake to just allow them to move distant. To be able to fail simply a turn given the smart public outcry for advocates for the most social society preventing American use of financial system is a full bench. Thank you. First of all, let's get this straight. The argument is too big to fail. Should a bank be too big to fail? We're not and in order to determine if a bank should be too big to fail that asset size the bank size has nothing to do with it. And my opponent over here Josh states banks should be allowed to grow which we agree they should be allowed to grow and small mid-sized institutions are no good. Yes, they're no good because then they can't compete in a global market. We stated that we agree with that but in order for a bank to be too big to fail systemic risk has everything to do with it and systemic risk should not be confused with unsystematic or systematic risk. And I think my opponent over here got that confused because he stated systemic risk instead of systematic risk. He claimed that even small banks have system systemic risk which is false small banks don't have systemic risk because systemic risk refers to a bank that adversely affects the economy. If it's a small bank then how can it adversely affect the economy? We can't. Also Josh states that small banks small bank family is no different from a large bank family. Well this is obviously not true once again. A big bank one that adversely affect the economy has the disastrous effects when failed. A small bank that won't really affect the economy may fail and our economy will still be in fact. Our banks should be small in terms of something to fail. Thank you Joy. I'd just like to first start on one of the biggest arguments. You mentioned that big banks are necessary because they can carry such diverse portfolios. Now highly diversified banks were created mostly in the 80s because because it was an effort to protect their assets. That is if one department were to go into a bust then the other department can or other departments the banks have will still be doing good and still be able to generate profits for the banks. This created a kind of one-stop shopping in the bank industry. Now the other side I just want to say that the idea that we need big banks to compete with other foreign banks is a facet. Now while global competition within the banking industry is necessary for healthy international market we as a nation do not need mega banks to compete with other foreign banks. Prior to our crisis many of our banks which are now classified as too big to fail were participating and competing willfully with foreign banks. However international banking excuse me capital market operations within and outside the country constitute a significant source of risk because they are less regulated and in some cases not regulated at all. Now I'd like to quote Thomas Honey again if you recall the president and CEO of the Kansas City Fed. In an interview he was asked he was asked whether the U.S. needs big banks to stay competitive in the world of international finance and economy. This is what he said and I quote this is a fantasy I don't know how else to describe it our strengths will be from having a strong industrial economy we will have financial institutions that are large enough to give us influence in the markets but not so large that they're too big to fail. The outcome of this is that strong banks and strong economies bring capital to themselves and they are by themselves competitive. The United States became a financial center not because we had large institutions but because we had a strong industrial economy with a good working financial system across the nation not just highly concentrated in one area. So that is what I have for my book. Thank you Peter. So my esteemed colleagues to my left have tried to tell you that America needs large banks because of all the services and benefits they're able to provide big is better because of what big can offer its customers and the economy. I feel it necessary to read this quote. First of all one service that big banks really should provide for the overall economy is an availability of credit to small businesses. However even America's biggest banks can't quite seem to provide a sufficient level of social lending. Earlier this month Charlie Cray the director of the Center for Corporate Policy said that according to the U.S. Treasury's monthly tarp lending survey released in March lending to small businesses by the nine big U.S. banks that received federal bailout money fell almost 20 billion dollars between December and January. The 19.3 billion dollars in loan originations for the month of January was the smallest amount since October which was the last month that new loans had fallen. So even as those big banks need too big to fail have received billions of tarp dollars they have not done their part to provide the conditions in small business loans necessary for a thorough large-scale economic recovery. There are also heavily researched examples in which small banks have clear comparative advantages at certain operations. Back in 2003 five major economists including a senior economist at the Board of Governors of the Fed wrote a paper for the Journal of Financial Economics by the name of Does Function Allow, Follow Organizational Form? Evidence from the lending practices of large as well banks. In the paper Berger et al analyzed the incentives that were inside both large and small banking institutions. First of all different incentives found in different banks seek different sorts of information specialization. The aforementioned study concludes that small firms are a comparative advantage in evaluating investment projects when the information about these projects is naturally soft or can't be easily communicated from one agent to another. Also large banks will shy away from small business lending and will not give character loans. The model predicts that a loan officer in a large bank has little incentive to produce high quality information in such case. Operatives at small banks face controlled incentives to gather soft information and to direct their bank to make loans the small businesses will need to be credible via the soft information. These operatives behave this way because at a small bank they can more likely get done what they want to get done. Here's an example that ought to illustrate the incentive situation. Imagine if you will two loan officers. One loan officer works at a small bank the other works at a large bank. The loan officer employed by the small bank is only one of a few such operatives that deserve a bank. This loan officer has a rather strong voice of the bank in terms of capital allocation. As such this loan officer can count on his or her companions regarding potential borrowers to be thoroughly considered. The loan officer at the small bank can then make suggestions for loans based on all the ever sorts of information they may find out about as long as it pays off and the borrower pays up. The loan officer at the big bank is one of many operatives and assists within a hierarchical framework. This loan officer may spend a lot of time and energy harvesting information about potential loan candidates in the area. However relative to the size of the large bank institution the loan official likely builds a new sway. He or she is not all that sure how likely their opinions and data will be utilized. As such given their lack of control loan officials at large banks have little or no incentive to acquire any extra information beyond that which can be easily forwarded on top of the chain of command. Furthermore in conducting my research I have found few worthwhile specifications for the current sizes of America's mega banks. In a recent public to coast article Robert Reich even went as far as to say that the only way to ensure that no bank is too big to fail is to make sure no bank is too big. Period. Nobody has been able to show any scale efficiencies over $100 billion in assets. So that should be the limit. Currently America's mega banks are far larger than this. In conclusion I'm not trying to set a specific asset or size limit. I'm just trying to make it clear that America's mega banks are not beneficial to the economic well being in this country and they are beyond size. Thank you very much. What's the second thing please through the revolts to the presentation given that portion. Paul I'd like to throw something up. It seems that my opponents believe that I was implying that when a small bank fail it's the same as a watery bank the singular small bank. That's not quite what I was getting at. I was implying more that a lot of small banks fail at the same time. That's the same as a large bank fail. And that's pretty much what happened with Georgia. All the small banks are doing all the same things making all the bad loans because there aren't the laws there to protect consumers from the positives. I think a lot of loans to people who shouldn't only can pay the bad will make those bucks. And if all the small banks are doing that then all the small banks go bust. And that's going to be the same as a large bank fail. So I just like to prep this I'm going to say by saying it wasn't just banks it was also the government and individuals that are involved in this crisis and why we came to where we are. And of course banks are taking the brunt of it and I think it's as well deserved. And until the unemployment rate goes back up they're going to suffer and they're going to take the brunt of everyone's anger. But I have to say the fact is banks create a lot of value. If I were to pose this question now big banks create a lot of value. What bank do people bank with here especially in UMass I think everyone would say bank with America which happens to be the biggest bank right now in the U.S. Why? Because it creates so much value. The thing about how easy it is to go to a branch of a bank from America to get something motorized to get cash from the ATM to figure bills online to track your expenses. Small banks don't have ATMs. I have a credit union and they have some 41 ATMs not nearly as accessible funds as big banks. And our opponents say that competition with large foreign banks is of no consequence and I think they're saying that we could bank within the U.S. and more of the rest of the world which is I think almost like too prideful to say that we can't interact financially with other countries and I think that's something that we will need to do and that's why we need the bigger banks that be able to complete the markets that foreign banks in Europe are taking over. Also, they're saying that big banks have way too much political power and that they can lobby and get things their way but I would like to say that this could happen same through organizations like the ADA which are organized banks to get them and you have the same kind of lobby and so splitting up bigger banks and smaller banks will not solve that problem. To finish it off I wanted to talk about so I already talked about Microsoft and energy. First of all, they're both not banks. Do you know they have monopolistic like intentions? This is Microsoft trying to blow up to like big tech store but it's still closer to the viewers so whereas the law case in the 90s and 2000s they try to break up different Microsoft out of the amount not only market shares. So for one thing banks for example the RBC the World Bank Canada in Canada actually has about 30% of the market share in Canada and it's still making about $2 billion in terms of the lessons there here. So to say that banks to get to fail that's practically not true because we can see through different lenses of other countries that they are too good to fail. We can see in Sweden and Germany especially in Canada it's a big banks can reveal when you calculate it correctly. For example in the common old common law of Canada it's actually two institutions that monitor the two big banks within Canada under different regulations and every other thing. And I'm trying to say that the U.S. needs to implement new regulations to enforce these big banks aside from small banks. For example when a big bank fails it brings down like smaller banks like the market itself but you can collectively like control how it fails where it fails and how it will like to prevent itself from failing then the side of the bank will not happen. Another thing is that sorry in terms of that this was actually here at Board of Revenue within banks that's like saying go to a restaurant and say hey I'm not paying for this food because I know I'm going to cost you're going to buy for this as a service. So what banks do in terms of like all kinds of like searches and like it's actually that's part of the main thing. What's like the best thing is also part of the main thing. For you to say that risk like obviously higher risk equates to higher for the return profits. That's why we have like account argument of the systematic best regulator that implements like a regulation on how the risk can be regulated. So higher risk of this high capital returns to the higher insurance. Which is another of our ideas in the same way. And we have an insurance agreement within all these banks they're saying even if they were to fail. Another argument is that for people who decide to search for access to banks and to connect with lobbyists is not fair just because you know people in high places are like it's connected with networks and circuits that doesn't mean we're going to know a future power like oh I don't see all this big bank. Let me do this and that. That's not how it goes. What a person but like what's your line is not going to affect the whole system. Like what we're looking at is like the system capitalism itself is a cycle. You make money and you lose money. That's just how it goes. You can't say oh big banks fail. That's what's wrong with it. Big banks will continue if they have small banks. Which is really fair. What we're saying that bank regulations shift the policies to reduce risk is definitely something we are all for. Because institutions that have shadow banks and other institutions like AIG and the small joint banks that when they do mess up it affects the system as a whole. What I'm saying is that regular banks do not break the city net which is part of the big banks because they generate money when it's in the economy. So there are no big metrics that there is no economy. There wasn't no economy. I already saw some of these. What I'm saying is what you guys want to do first is what you guys want to do first. You guys want to do first. You guys want to do first. All right. Point number one large banks generate money. I'm sorry. I'm sorry. I'm glad. But large banks generate money. Point two as long as taking on more risk is more profitable even if you have all small banks they'll still be doing that and they'll still have the same problem as they do now. So it doesn't even really matter. And third if you get rid of it then there will be massive capital flooding from the U.S. too. To our place. Okay. I've got you two players. All right. We're here. Oh, here I am. So let's see. Three major points. Point number one is large banks seem to have had had it coming far more interconnected than our economy can handle. We've heard about like capitalist systems rise and fall profit and then not. When you get to the point of largeness and interconnectivity of large banks you have a problem where like if these big, big, big dominoes and you only have a few of them and when each domino falls it has a huge weight in its destruction of the fact. If you have like point two would be political like the political realities. You have these huge, huge banks that have huge lobby potential on both the legislation that is made and over the day-to-day regulatory action and protocol that actually gets enforced. There's laws in books and there's laws that are enforced. Three. Third point. Lastly, we're just just the fact that we have our, you know, our society and not really our society but the people in charge of regulating these banks have created not that it's their fault but they have to build up these banks. These banks are too big and if they do fail, if they were to fail we weren't to nationalize them then we would have been in some sort of terrible, terrible state because we didn't build them up. Not to say that nationalizing may be the wrong choice but however, had those banks not been that big in the first place then we wouldn't have had to do that. We wouldn't have to take these kind of actions. Thank you very much. Thank you. Is that helping you in the work? No. They usually announce that at the present delivery. So I guess right now we're going to do something new. This year for the first time ever we have certificates for all the members of the big teams. So what's going to happen next is that the judges are going to be secluded into a room and tell them that they're going to make me start. Yeah, that was pretty modern. The next time they'll come downstairs we will already be fed. We'll have the scraps. And they will tell us who won. So I'm going to hand these out and then we can all head downstairs. So the first one is to Yeah. Having said that, I'm going to pick a side. And so the test was well, which would we figure that the arguments were made in a most compelling and convincing way. And I'd have to go with the, if we get the term or the other, too big to be able to. That's one. And we're doing a terrific job.