7 ms·
What would be the economic consequences of breaking up big banks?
by ecubed 14y ago
What would be the economic consequences of breaking up big banks?
- damoncali 14y agoSlightly higher interest rates - in theory.
- yRetsyM 14y agogreater redundancy through autonomous systems?
- contingencies 14y agoInteresting suggestion. One of the unintended consequences of some research my company conducted last year with a view towards bridging disparate settlement systems through objective description of their properties was the realization that existing financial services platforms rarely have redundancy; we would be adding this to resulting systems for free. For some results on the open side of that research, somewhat stalled early this year but moving along soon, see http://ifex-project.org/ http://ifex-project.org/ ... thoughts/contributions very much welcome.
- yRetsyM 14y agogreater redundancy through autonomous systems?
- avdempsey 14y agoGreat Kindle Single on breaking up the big banks: http://www.amazon.com/Megabanks-Mess-Kindle-Single-ebook/dp/B0051GQX1I http://www.amazon.com/Megabanks-Mess-Kindle-Single-ebook/dp/...
- graue 14y agoThis says it's not available for purchase for customers from the United States. Any other source?
- kerno 14y agoIt depends on what "breaking up the banks" means. If we just mean to break them up into smaller banks, it is hard to say whether negating the benefits of scale will raise costs higher than the competitive pressure of no longer having dominant institutions effectively being able to set prices. If we mean to break up securities trading and deposit-taking divisions into separate institutions (as Glass-Stegall was meant to enforce until repealed) then we may see a return to a more stable Wall Street, as the house would be forced to play it's own money instead of yours, and 'banking' will be pure and boring again.
- TimGebhardt 14y agoThere's evidence that bigger and bigger banks don't achieve more efficiency: http://www.washingtonsblog.com/2009/10/big-banks-are-not-more-efficient.html http://www.washingtonsblog.com/2009/10/big-banks-are-not-mor...
- damoncali 14y agoThere is also that the largest banks have the implicit support of the federal government, and therefore have an artificially low cost of capital relative to smaller banks (because the Feds will prevent a default). That benefits someone somehow, although it can be hard to figure out who.
- kerno 14y agoThis, for me, is ultimately the major reason that private banking institutions, as they are currently formed, must be changed. The implicit and even explicit backing of a government of a private institution, forced as a result of that bank's size and market impact, allows that institution to take larger risks and to privatise profits that are generated as a result of the public's support. This is a major unintended consequence of saving big banks during the financial crisis.
- chii 14y agoyep, privatized profit, but socialized losses.
- nonamegiven 14y agoLarge mistakes and crimes would have smaller impact.
- edwinnathaniel 14y agoAs one commenter said it before: slightly higher rates (due to competition). Another one would be: target of acquisition of a bigger international banks (HSBC comes to mind). Slowly the govt. has to regulate that as well or else ...
- nekojima 14y agoSlightly higher rates would not be due to competition, but the reduced economies of scale and the perceived increased risk from relying on potentially fewer clients and a smaller loan book. A reduction in the Return on Equity could help to compensate to lower interest rate, but then the bank may not be as favoured or valued as highly by investors.
- supercanuck 14y agoMaybe somebody smarter than me might know more, but I think if you break up a bank, you have to sell off its assets or transfer them of some kind and currently: 1. Banks don't have to value their assets at market price (that whole mark to market issue) and 2. Banks are currently trading below their book value, because, from what I've read, nobody really trusts the value of those assets. So, it could in theory spark a new global panic by people shorting banks and withdrawing capital.
- bsims 14y agoYou're correct about the book value and asset quality being an issue. I don't think a run on banks would be an issue if government orchestrated (especially if not during a crisis). More than likely it would be similar to how AT&T was done previously. http://en.wikipedia.org/wiki/Breakup_of_AT%26T http://en.wikipedia.org/wiki/Breakup_of_AT%26T You Canadians have it figured out, your banking system seems far more efficient with larger regional institutions.
- mtgx 14y agoAt this point we need to be more worried about the economic consequences of the next crisis big banks will create. Compared to that danger, I think the breaking the banks one is pretty minimal.