An Entente Cordiale for the Big Banks?

A lot of people are still furious at the big banks, and every positive earnings report and bonus announcement in the coming months will only stoke their fury. Here is an industry which virtually vaporized itself less than a year ago, which are among the living today  only by virtue of taxpayer financing and risk-bearing, and much of which has bounced back to its old  sharp-elbowed self while the public is still gasping for air and trying to figure out how massive bailout will ultimately be paid for – higher taxes, reduced spending or higher inflation. No wonder the public perception of bankers has eclipsed such perennial favorites as trial lawyers and insurance salesmen in the social pecking order.

Chapter 5: Executive Summary – Enhanced Regulation of Large, Complex Financial Institutions

From the book “Restoring Financial Stability: How to Repair a Failed System”. Section II: Financial Institutions


Deregulation in the 1990s gave rise to a new generation of what the Federal Reserve has called “large complex financial institutions” (LCFIs).  These are huge private sector enterprises engaged in a broad array of financial services including commercial banking, investment banking, asset management and insurance.  Banking regulators now generally regard them as too-big-to-fail (TBTF).

The expanding LCFI share of the US financial services market suggests that the beneficial effects of economies of scale and scope and related operating-efficiencies outweigh the costs of complexity, increased risk-exposure and conflicts of interest. But their record of massive credit write-offs, regulatory infractions, repeated legal settlements, and poor long-term share price performance suggest the opposite conclusion.

After the Wreckage: What’s Next for Universal Banks?

The dramatic actions in the last few days of the European and American central banks and treasuries suggest the beginning of the end of the global debt crisis. Some of them, especially the partial nationalization of national banking systems and the unlimited government guarantees of financial contracts, are unprecedented in modern finance. More surprises are probably still to come. But it is not too early to think about what kind of global financial architecture will emerge after the dust settles – and what impact this may have on some of the key banks and financial centers. The basic functions of global banking and finance will continue, or course, but they are unlikely to return to business as usual anytime soon.

Time to Congratulate the European Banks?

Now that the global debt crisis has destroyed many of the more respected and venerable institutions on Wall Street, and has caused more damage and dislocation to the wholesale financing industry than anything experienced in seventy-five years, the question is “what next?”. Lehman Brothers and Bear Stearns have disappeared, Merrill Lynch and Wachovia were forced […]

Hurricane Season for Investment Banks

This is the peak of the hurricane season – and in its financial markets. Just as Hurricane Katrina devastated New Orleans a few years ago and Hurricane Ike recently swept over the Texas coast, Hurricane Mortgage-Debt has done a job on Wall Street, causing more damage and dislocation than anything experienced in seventy-five years. The […]