too-big-to-fail Archives - Page 3 of 4

October 25, 2012

We should go further unbundling banks | Andy Haldane | Bank of England

Andrew Haldane, BOE Director of Financial Stability, addresses the too-big-to-fail problem in a recent article and makes the point that reducing complexity would increase investor trust in the banking system and improve liquidity.

…….Today, the Volcker proposals in the US, the Vickers proposals in the UK and the Liikanen proposals in Europe envisage a similar unbundling of banking portfolios. Despite the alarm some have expressed, if implemented faithfully and simply such structural solutions ought to help solve the too-complex-to-price problem, to say nothing of too-big-to-fail. Alongside efforts to strengthen macro and micro-prudential regulation, these initiatives would help mobilise bank funding and lending, just when it is most needed for the economy.

We should go further unbundling banks | Andy Haldane | Bank of England (pdf).

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.

October 15, 2012

5 Steps Obama or Romney Must Take to Fix Wall Street

By SUZANNE MCGEE

In [Sheila Bair’s] view ….. we haven’t yet come to grips with many of the problems that produced the crisis.

Too many regulators fall victim to one of several fatal flaws, Bair suggested in a speech to the National Association for Business Economics yesterday. Some of them over or under-regulate (usually at the wrong point in the cycle); they devise impossibly complex rules; they are “closet free-marketeers” proposing convoluted rules to prove it’s impossible to regulate financial institutions, or they are “captive” regulators who, without any corruption or malfeasance involved, have simply subordinated their judgment to those of the organizations they are charged with overseeing.

The former chair of the Federal Deposit Insurance Corporation suggests five steps that presidential candidates should take to fix Wall Street………

via 5 Steps Obama or Romney Must Take to Fix Wall Street.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 10, 2012

Fed Governor Daniel Tarullo Calls for Cap on Bank Size – WSJ.com

By VICTORIA MCGRANE And ALAN ZIBEL:

“In a Philadelphia speech, Fed governor Daniel Tarullo recommended curbing banks’ growth by putting a limit on their nondeposit liabilities, which are sources of funding for operations that go beyond consumer deposits. The idea takes direct aim at the biggest U.S. banks, including J.P. Morgan Chase & Co., Bank of America Corp., Goldman Sachs and Citigroup Inc., all of which rely heavily on such funding. Firms outside of this tier make much greater use of regular deposits…..”

Comment:~ Rather than placing a fixed size limit on too-big-to-fail banks, it may be more effective to raise capital adequacy ratios and/or leverage ratios for banks above a certain size — to discourage further growth. There may well be advantages, such as economies of scale, that enable large banks to deliver better pricing to their customers — and justify their size — but we need to guard against systemic risks. Rather than setting a size limit, higher ratios would ensure that large banks are well capitalized to withstand systemic shocks.

via Fed Governor Daniel Tarullo Calls for Cap on Bank Size – WSJ.com.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 17, 2012

EU Commission Considering Splitting Up Banks to Avoid Future Bailouts – SPIEGEL ONLINE

By Martin Hesse and Christoph Pauly

EU Commissioner Michel Barnier has asked experts to examine the possibility of splitting up major European banks to avoid future bailouts at taxpayers’ expense. But even less radical intervention in the banking sector could have drastic consequences for the industry, and its powerful lobby is resisting any such change……

[Daniel Zimmer, head of the German Monopolies Commission] notes that Germany has already taken steps in the right direction. Under the new German restructuring law, when a bank is in trouble the most critical parts of the institution can be transferred to a bridge bank, allowing the remainder to be liquidated. In such cases, the shareholders and most of the bank’s creditors would not be compensated. A fund made up of contributions from banks would cover restructuring costs.

But there is a problem with the new system. “In a worst-case scenario, a bank has to be split up into vital and other parts within a single weekend,” says Zimmer. “This is only possible if there is already a clear separation between the two parts beforehand.” This is why Zimmer believes it makes sense to establish the dividing line in advance, in a manner similar to what Britain’s Vickers Commission envisions.

via EU Commission Considering Splitting Up Banks to Avoid Future Bailouts – SPIEGEL ONLINE.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 17, 2012

2008 Financial Crisis Cost Americans $12.8 Trillion: BetterMarkets

Better Markets, a pro-financial reform Wall Street watchdog, estimates the total loss of American wealth since Sept. 15, 2008, when Lehman filed for bankruptcy, as $12.8 Trillion dollars — almost one year’s GDP. Better Markets president & CEO Dennis Kelleher calls for effective regulation of systemically important Wall Street firms to prevent a recurrence of the GFC.

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Better Markets: Cost of the Crisis (PDF)

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

September 5, 2012

Simon Johnson: Why Are the Big Banks Suddenly Afraid? – NYTimes.com

The threat of too-big-to-fail banks has not diminished. The combined assets of the 6 largest US banks is bigger now than in 2008. Simon Johnson, Professor of Entrepreneurship at M.I.T. Sloan School of Management, writes:

A growing number of serious-minded politicians are starting to support the point made by Jon Huntsman, the former governor of Utah and a Republican presidential candidate in the recent primaries: global megabanks have become government-sponsored enterprises; their scale does not result from any kind of market process, but is rather the result of a vast state subsidy scheme.

…..Serious people on the right and on the left are reassessing if we really need our largest banks to be so large and so highly leveraged (i.e., with so much debt relative to their equity). The arguments in favor of keeping the global megabanks and allowing them to grow are very weak or nonexistent.

The big banks will vigorously defend any attempt to break them up and they have deep pockets. It would be far more effective and politically achievable to raise reserve requirements, lifting capital ratios and reducing leverage to the point that large and small institutions alike are no longer a threat to the economy. Even if we adopt a two-tier approach, with higher ratios for institutions above a certain size.

We need to remember that a fractional-reserve banking system is not an essential requirement of the capitalist system. All that is needed is an efficient intermediary between investors and borrowers. Equity-funded banks proved effective in funding Germany’s industrialization prior to WW1. Islamic banks today follow similar principles. Over-dependence on deposits is the primary cause of our current instability.

via Simon Johnson: Why Are the Big Banks Suddenly Afraid? – NYTimes.com.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

July 9, 2012

Basel takes aim at Mega Bank | | MacroBusiness

Deep T: As the research previously posted here on MB shows, Mega Bank [the big four Australian banks: NAB, CBA, WBC and ANZ] carries a level of capital against residential mortgages that is less than 2% even with mortgage insurance. Mega Bank uses internal risk based models to determine the amount of capital which are primarily based on the historical default rate of Australian mortgages relative to loan to value ratios. The period over which Mega Bank assesses the historical default rate is primarily over a period of rising house prices fueled by the expansion of mortgage credit by Mega Bank. Thereby masking probable default levels over a more benign period…..

via Basel takes aim at Mega Bank | | MacroBusiness.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

May 2, 2012

FRB| Governor Tarullo: Regulatory Reform since the Financial Crisis

It is sobering to recognize that, more than four years after the failure of Bear Stearns began the acute phase of the financial crisis, so much remains to be done–in implementing reforms that have already been developed, in modifying or supplementing these reforms as needed, and in fashioning a reform program to address shadow banking concerns. For some time my concern has been that the momentum generated during the crisis will wane or be redirected to other issues before reforms have been completed. As you can tell from my remarks today, this remains a very real concern.

via FRB: Speech–Tarullo, Regulatory Reform since the Financial Crisis–May 2, 2012.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

March 1, 2012

Five Largest Banks ‘Should Be Broken Up’: Fed’s Fisher – CNBC

The five biggest banks in the United States are too powerful and should be broken up, Dallas Fed President Richard Fisher said on Wednesday.

The financial crisis has left the five biggest banks even more powerful than before, he said at an event in Mexico City……

“After the crisis, the five largest banks had a higher concentration of deposits than they did before the crisis,” he said. “I am of the belief personally that the power of the five largest banks is too concentrated.”

via Five Largest Banks ‘Should Be Broken Up’: Fed’s Fisher – US Business News – CNBC.

November 30, 2011

Europe’s big banks need a bailout

David Weidner, Marketwatch: “Give me a swap line on currency and I will bet the farm….I am shocked that the market is rallying this much today on this news [European markets up about 10pc in dollar terms].”

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David Weidner interviewed by Evan Newmark of Mean Street.