Tag Archives: Too big to fail

Comment to NPR story: Experts Say Bills Won’t End ‘Too Big To Fail’

Comment to NPR story:  Experts Say Bills Won’t End ‘Too Big To Fail’

I disagree. The new legislation uses higher capital requirements and lower leverage limits to control systemic risk. This is the right approach. It makes the entire financial industry less risky and more insulated from downturns. “Break up the banks” sounds more anti Wall Street and sounds tougher, but remember in the Great Depression 5000 banks failed in the early years. It is no better for 5000 small banks to fail than it is for 10 large banks to collapse. What counts is that all banks are more regulated with stronger restrictions. Canada has superbanks, among the largest in the world, but suffered no financial crisis and required no bailouts. Canada’s banks incurred losses, but they were small compared to resources of the banks, because regulators there expect banks to be better capitalized and they can demand bigger banks, which pose more risk the system, to meet higher requirements than small ones. For a comparison of Geithner’s plans and Canadian approach: https://marcivanseltzer.wordpress.com/2010/01/29/what-can-canada-teach-us-about-banking/