Angry Banker

Big Banks: Still in Charge

I wish everyone would quit whining about "too big to fail" already! When the former Citicorp (pre-Citigroup) was headed towards failure in the early 90's, it was deemed too big to fail then and thus bailed out. And it was MUCH smaller at that time then it is today. Look, it's just a fact of life that in our globally interconnected economy, there are going to be some very large institutions that would have a debilitating effect on the global financial system if they failed. So I think we have to live with that fact and look for other ways to mitigate the risks of such institutions going down besides "breaking them up into tiny pieces".

That means better regulations (not necessarily MORE regulations, just BETTER regulations). The regulators need to have a better understanding of all the risks banks are undertaking and ensure that they DON'T engage in those risks that are not properly controlled. They should also make sure that banks are just doing banking. That means accepting deposits, lending them out at a sufficient spread over the cost of funds, and facilitating trade. Banks have no business selling insurance products (not just traditional insurance products, but also things like CDO's), peddling securities, or in my humble opinion, even trading securities. Enabling banks to deal with these products and services only increased the risk appetite of the banks and exposed them to greater losses when they screwed up.

So get back to basics. Accept deposits, make loans (to properly qualified and verified borrowers) with appropriate collateral, and process payments and receipts between customers. That's all banks should do and no matter how large they get, it is unlikely they will fail and cause mass financial destruction.