Comments on: Why pick on big banks?

By: Tom G

Tom G — Wed, 10 May 2017 08:01:22 +0000

tiny typo “small” twice, second time should be “big” as contrast in #2:
“For small banks, the second probability is not high, because the FDIC tries to resolve these banks with mergers, and that leads to excess willingness to lend to those banks. But for small banks, the second probability is exactly zero, and that distorts behavior even more.”

The country is much better off with a couple of thousand medium sized banks whose CEOs are millionaires, rather than a thousand mediums plus a dozen huge banks with multi-millionaire (billionaire?) CEOs.

Part of the stagnation has been too few loans to start-ups and new entrepreneurs — more medium banks would be competing more for that business.

The mergers of the big banks are not helping consumers, nor most employees. Probably it could be shown that part of the stagnation in banking worker wages is that there are fewer competing banks, tho I haven’t seen data on this. The top wages go up disproportionately.

I remain enraged at the TARP bailouts for the big, irresponsible TBTF banks. There would have been a stronger recovery with more big bank failures and rapid restructuring and ending of big bank bonuses.

By: josh

josh — Sun, 07 May 2017 00:21:27 +0000

I don’t understand the claim that the 2008 bailout cost $150bn. Hasn’t the government recorded a net profit on the bailouts? https://projects.propublica.org/bailout/
And this doesn’t count the massive criminal penalties paid by the banks?

By: Matthew Young

Matthew Young — Sat, 06 May 2017 00:55:27 +0000

The government bond market, the ten year rate is rigged by the big banks so that the Senate does not go way off budget. It is a necessity because there is one supplier of debt, Congress. Congress could never budget without the big banks conferring on klikely rates and charges.

By: collin

collin — Fri, 05 May 2017 19:34:24 +0000

2) Most consolidation of markets were from mergers and acquisitions with some degree of stronger and economies of scale. We have seen a Grocery stores brands disappear a lot the last thirty years and most of them were mergers and investors decided to sell out. And I bet that was true with a lot mergers of banks in 1980 – 2003. Also in terms of economy of scales, isn’t there ATM and branches give the big banks a lot of benefit here? Also bank economy of scales makes investor more willing to give money at a .15% lower rate. At this point, if one large bank was close to failing(instead half of them), the Fed could close it down correctly. Overall, I don’t see why the bank mergers or grocery store mergers were significantly different outside investors making more and CEO bonuses.

4) Quite honestly, I have never seen a price tag on TARP as most of the companies paid the money back by 2012 where as S&L was a direct check $140B (closer to $260 inflation adjusted). Throw in AIG and Frannie/Freddie I would like to know to the exact price tag. Otherwise, I do tend to agree the post S&L system was stronger than the post-TARP system.

3) We forgot how ridiculous how fragmented the banking system was 1980. It was a Depression era religion. Then at period from 1980 – 2010 was the optimal?

And in terms of competition, maybe the feds should allow Wal-Mart or, say, Apple/Google enter banking.

By: Andrew'

Andrew' — Fri, 05 May 2017 16:30:51 +0000

(My) attempted start at a taxonomy of the issue by separating the components
(A) Moral Hazards and the likelihood of booms
(A.1) Why do banks grow? Non-competitive advantages big banks have for growth.
(A.2) Systemic importance relative to size (small banks might have cascade failures, but one mega-bank is TBTF).
(A.3) Political favoritism
(B) Severity of the bust
(B.1) Likelihood of correlation of size and failure and correlation of assets with big banks versus greater diversifiction with small banks.
(B.2) Likelihood of the bailouts to be centered on the big banks (justified as trickle-down) versus attempts to support smaller entities from the bottom up. E.g., do we have a jobless recovery because not much more than saving the banks was attempted, banks who probably extracted wealth from consumers to shore up their own balance sheets?