the apologists for the TBTFs are now arguing that breaking up the
beached whales ... er, giant banks ... will harm America's ability to
compete with foreign banks.
Joshua Rosner (managing director of an independent financial services research firm), has written an important essay debunking this argument:
who argue against a more proactive reduction in risk and size of TBTF
institutions will, as always, revert to an argument that strikes a
natural chord in every American’s heart: ‘Doing so would create an
unleveled international playing field for our institutions relative to
their international competitors’. Level playing fields are a worthy
goal, but this is not a relevant argument. Instead, this tired bromide
must be resoundingly dismissed on several counts:
countries with the largest banks as a percentage of GDP (Iceland,
Ireland, Switzerland) demonstrated that a concentration of banking
power can cause significant sovereign risk and tilt global economic
playing fields away from that country.
- The likely
breakups of ING, Lloyds and KBC suggest that it is we who seek to
support an unlevel playing field where we subsidize our TBTF banks
while other nations recognize the policy failures of moral hazard. If
we continue down this path we will likely be at risk of violating
international fair trade regimes.
- When the “unlevel
playing field” argument is cited, keep in mind this reasoning supports
the disadvantaging of 8000+ community banks relative to our largest
banks, all in the name of protecting big banks from governmentally-
subsidized international competition.
- There is no
longer any evidence that, beyond a cost of capital advantage that comes
with implied government support, there are sustainable and tangible
economies of scale arising from being the largest. The financial
supermarket concept has been proven a failure. The only ones who
benefit are the high-level executives.
- We must demand
that our legislators no longer allow unelected officials at the
independent Federal Reserve to sign international accords created by
the TBTF banks through supra-national bodies like the Basel Committee.
we to believe that if we did not have such large and globally dominant
firms, US borrowers might be paying more that the 29% interest that
several of the TBTF firms are now charging on their card accounts?
Perhaps we should think about what advantage our population has gained
as a result of our financial institutions being such a large part of
our economy or being globally dominant.
- Since when did
we accept a national strategy of following rather than leading? When we
do what is right, others follow. As example, consider the bank secrecy
havens – they made money for a bit. Now, even the Swiss and the Cayman
authorities are coming around to our view.
- We are
already at a disadvantage given that the largest foreign banks operate
in the US without any tier one capital requirement and yet mostlarge
foreign banks have not built a bricks and mortar presence here. Nobody
screams about their undercapitalization nor has that
undercapitalization caused deposits to migrate to foreign banks.
What fake excuse will the apologists for the TBTFs throw out next?
breaking up the giants and letting small and mid-sized banks, credit
unions and state public banks compete fairly will shift the Earth's
gravitational field as deposits shift away from the money centers?
Rosner has a funny and potentially effective idea for putting pressure
on Congress. He suggests that we all call our representatives and ask how much the lobbyists have paid them to destroy America's economy by propping up the too big to fail banks.
Rosner's actual language is somewhat over-the-top: If
leadership won’t add such language [reigning in the TBTFs], call your
elected official and ask how much they actually receive when they agree
to put on the kneepads.