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Too Big To Fail not solved, says IMF

Absent reforms, another financial crisis is likely to leave taxpayers on the hook for hundreds of billions, warns the IMF, estimating the world's biggest banks receive up to $590B in implicit public subsidies because of their TBTF status.

Said subsidies include bankers who still have a "heads I win, tails you lose" attitude, and investors who lend at lower cost to banks than they might otherwise. The IMF calculated the size of the subsidies by comparing the CDS prices and credit ratings across larger and smaller banks. While the amount has fallen since the crisis, it still remains sizable. "All in all ... the expected probability that systemically important banks will be bailed out remains high in all regions."

Subsidies for the biggest players are "like insurance for which banks don't need to pay a premium," says senior IMF analyst Gaston Gelos.

Full report (starting on pg. 34)

Among the usual suspects: BBVA, BBD, BAC, BCS, BK, BNS, C, CS, DB, GS, HSBC, IBN, ING, JPM, LYG, MS, NBG, RY, STT, TD, UBS, WFC, WBK.

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Comments (13)
  • bob213
    , contributor
    Comments (80) | Send Message
    The reality is that there is a choice between having regulators with clout like the Reserve Bank of Australia which has not had a bank failure since the great Depression, or following a belief in Laissez Faire such as in the US and most international banking systems.


    In most cases this is a decision based on belief in societal systems rather than common sense.


    It is a simple fact that you cannot allow the banking system in a country to fail unless you are willing to write off the whole economy of the country.


    If you do not want real regulation then you must accept bail-outs
    31 Mar 2014, 01:02 PM Reply Like
  • SteveTheHawk
    , contributor
    Comments (1935) | Send Message
    I'm not a banking expert by a long shot. To me, it just seems like the government is tip-toeing through the world of banking in an attempt to "do something". Whatever they have done to date doesn't seem all that impressive. As you said, the real regulation just doesn't seem to be there.
    31 Mar 2014, 01:29 PM Reply Like
  • gwynfryn
    , contributor
    Comments (5320) | Send Message
    The problem is that those who profit from the financial gravy trains, like things the way they are, and so will lobby furiously to maintain the status quo. All the proposed reforms have been watered down to such a degree that their original purpose has been defeated.
    1 Apr 2014, 12:11 PM Reply Like
  • june1234
    , contributor
    Comments (3404) | Send Message
    Those quick IMF observation powers. TBTF leverage is BIGGER than ever
    31 Mar 2014, 01:21 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (12249) | Send Message
    Sadly, the systemic risk seems higher in developed nations than emerging markets that are affected by them. America joined the ranks of socialized dysfunctional when it created Fannie Mae and Freddie Mac and sealed the deal with their nationalization and the institutionalization and bailout of TBTF banks. Losses are now state losses and gains belong purely to those with connections.
    1 Apr 2014, 03:09 AM Reply Like
  • GetSmart17
    , contributor
    Comments (22) | Send Message
    Your point is well made. The problem is the longer we go down this road the harder it will be to fix. Here is an exerpt I came across that tell us what has happened to date in our current society. Not a pretty picture


    The central bank does not create anything real; neither resources nor goods and services. When it creates money it causes the price of transactions to increase. The original quantity theory of money clearly related money to the price of anything money can buy, including assets. When the central bank creates money, traders, hedge funds and banks — being first in line — benefit from the increased variability and upward trend in asset prices. Also, future contracts and other derivative products on exchange rates or interest rates were unnecessary prior to 1971, since hedging activity was mostly unnecessary. The central bank is responsible for this added risk, variability, and surge in asset prices unjustified by fundamentals.


    The banking sector has been able to significantly increase its profits or claims on goods and services. However, more claims held by one sector, which essentially does not create anything of real value, means less claims on real goods and services for everyone else. This is why counterfeiting is illegal. Hence, the central bank has been playing a central role as a “reverse Robin Hood” by increasing the economic pie going to the rich and by slowly sinking the middle class toward poverty.


    Janet Yellen recently said “I am hopeful that … inflation will move back toward our longer-run goal of 2 percent, demonstrating her commitment to an institutionalized policy of theft and wealth redistribution.” The European central bank is no better. Its LTRO strategy was to give longer term loans to banks on dodgy collateral to buy government bonds which they promptly turned around and deposited with the central bank for more cheap loans for more government bonds. This has nothing to do with liquidity and everything to do with boosting bank profits. Yet, every euro the central bank creates is a tax on everyone that uses the euro. It is a tax on cash balances. It is taking from the working man to give to the rich European bankers. This is clearly a back door monetization of the debt with the banking sector acting as a middle man and taking a nice juicy cut. The same logic applies to the redistribution created by paying interest on reserves to U.S. banks.


    Concerned with income inequalities, President Obama and democrats have suggested even higher taxes on the rich and boosting the minimum wage. They are wrongly focusing on the results instead of the causes of income inequalities. If they succeed, they will be throwing the baby out with the bathwater. If they are serious about reducing income inequalities, they should focus on its main cause, the central bank.


    In 1923, Germany returned to its pre-war currency and the gold standard with essentially no gold. It did it by pledging never to print again. We should do the same.
    31 Mar 2014, 01:27 PM Reply Like
  • JamesChessing21
    , contributor
    Comments (133) | Send Message
    That solution would put too many central bankers and economists out of a job...Too simple for them to waffle on about nothing ...
    31 Mar 2014, 06:46 PM Reply Like
  • Tobias Schmitz
    , contributor
    Comments (542) | Send Message


    Completely agree with your analysis. But so do a lot of other people. And this is what really puzzles me: most people know that current central bank and general economic policies favor the biggest banks and corporations including the extremely rich as individuals.
    Yet there is no action as a result of that knowledge, the attempt to change things. This raises a crucial question: were the oppressive autocracies, for example the monarchies of the middle Ages opposed on idealistic grounds or on economic grounds? I.e. were they just opposed because of the resulting miserable living standard for the majority?
    And in consequence: would an oppressive government which blatantly caters to the 1% but at the same time results in halfway decent living standards for the 99% really be opposed?
    So far it looks like that this elite today is getting away with it by just dropping enough crumbs for the rest.
    31 Mar 2014, 09:13 PM Reply Like
  • JoseV
    , contributor
    Comments (408) | Send Message
    The real problem is that Politicians, notably in the US, have too much power over the Central Banks and do not want to have tight Regulations that will inhibit the Games the Politicians play!!!
    31 Mar 2014, 02:11 PM Reply Like
  • omarbradley
    , contributor
    Comments (964) | Send Message
    well...leaving aside what defines inflation these the problem not enough democracy? or too much?


    a lot of "the folks" have long since participating in the process.
    Are we suppose to "blame the voter" for this "surprising" turn?


    I mean since when did "work not paying" become the cornerstone of Western Civilization? Sure doesn't seem to be a problem with the Ukraine folks. They're ready to earn it..."time to abandon them at the alter too"?
    31 Mar 2014, 03:48 PM Reply Like
  • Martin Vlcek
    , contributor
    Comments (985) | Send Message
    "like insurance for which banks don't need to pay a premium"


    Yes, the risk is definitely mispriced and many investors still expect to be bailed out in a future black swan event:
    31 Mar 2014, 04:22 PM Reply Like
  • positivethoughts
    , contributor
    Comments (2033) | Send Message
    Central banks control everything. They increase the money supply, they set prices, they control inflation etc.
    31 Mar 2014, 05:59 PM Reply Like
  • positivethoughts
    , contributor
    Comments (2033) | Send Message
    When you have the Japanese government paying less than 2% on 30 year-term borrowings, you know the problems central banks create are still present. Without such banks, the japanese government would be paying 10% on their money.
    31 Mar 2014, 06:01 PM Reply Like
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