3-Dec-13
America 's largest banks into small , bite-sized units idea was billed as an antidote to the "too big to fail" concept that the biggest banks must never be allowed to collapse because of damage failure on the economy. Cutting large banks down to a more digestible size cleverly solved the problem , supporters say .
The argument is simple and attractive , but there are serious defects. This implies that a taxpayer bailout guarantees wearing hook and competitors at a disadvantage. However , limiting banks' size will help to solve the " too big to fail ", and do more damage to the financial system and the U.S. economy.
Large bank companies such as Citigroup, JP Morgan Chase , Bank of America and Wells Fargo Bank as a key financial role in the ecosystem . Working on a global scale , they are America 's global operations is particularly important. Large enterprises can also larger than the base cost reduction through infrastructure , technology and other capital expenditures customers spread the cost of localization. If they are broken up , these banks' ability to provide global services will weaken , and the cost will rise. Ultimate losers will be the American consumer and the American economy.
In any case , given the dynamism of the market, to calculate the "correct" size or banking regulators will be an impossible task . Perhaps most importantly, the restriction on the size of banks will not solve the underlay of the " too big to fail " principle concern. Despite its attractive terms , " too big to fail " is not just about the size. A small but high leverage and the company 's actual linkages can present more serious systemic risk than large banks .
Nor is it limited to the bank's attention. Non- bank financial institutions - such as insurance companies AIG and mortgage giants Fannie Mae - the same as systematically important banks . In 2008 , it was just received the largest bailout of such enterprises . To limit the size of banks will do anything to prevent this.
Rather than trying to prevent failure cut banks, regulators should focus on the establishment of bankruptcy law does not allow such institutions to fail undue harm to the economy .
Break the bank is a simple answer to a complex problem. And like many simple answer , and that is wrong, could do much harm with little or no benefit. "Too big to fail" should end up , but breaking up banks is not the way to do it .
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