I have to agree that having a greater number of smaller companies would be immensely beneficial. Actual competition is the spirit of capitalism. But how do we do this? Do we break up the offending banks into smaller banks? And for the future, is there a cost to regulating the size of a bank? Would there be a point that the govt steps in and says 'no, this company is too big, it has to break into smaller companies.' Wouldn't that be punishing them for succeeding? On the other hand, the govt could create much tougher laws regulating mergers. That alone would do a lot. Massive banks merge with other massive banks and become behemoths "too big to fail." The "too big to fail" problem is infuriating. It just shows you that all you have to do is entrench yourself in a large enough bank and you'll never be held accountable for anything. No matter how stupid you are, no matter how much you lie, how irresponsible you are, no matter how bad you are at your job- you'll be ok. The govt will have to bail you out.
Man if you're the shareholder of one of these banks, you aren't really feeling like you've been bailed out! A lot of this is essentially bankruptcy without the costs of going through bankruptcy....basically the common shareholders have a chance of coming out of alive if there is something salvagable...which I think there is, but in no way is a shareholder being made whole again (especially if you take into consideration how long it will take for common share prices to recover). If this doesn't drive shareholders to demand more from Board of Directors who in turn should demand more from their executives, etc., then you're right, nothing changes. Except can you imagine being an investor in a bank today unless you knew it was well run? Investors will demand better and crappy operations have been and will be punished.
Oh and I think the smaller banks will benefit and more of them is a GREAT thing. They are poised to be very profitable over the next few years as these large guys deleverage, etc.
+1. The banks at the top never let the small banks survive. That's one of the huge flaws with having the privatized Federal Reserve.
I don't even need to read the article to agree with this. Big banks + risk = failures and gov't bailouts. But if the U.S. regulates the size of our banks, do capital, deposits, institutional clientele flow to larger, less regulated overseas financial institutions? What happens to us when those fail, with all that American capital?
There use to be rules about banks. That commercial banks couldn't do investment activity, and vice versa. There use to be rules about derivitives and mergers that prevented banks from playing in too many sandboxes. Keep the sandboxes seperate - that was the lessons learned from the past. Just goes to show when you deregulate and ignore the rules wise people put in place, you invite disaster.
