Published: 17 January, 2013, 16:36
Crisis, Banking, Global economy
Richard Fisher (Reuters / Jose Luis Magaua)
US “megabanks” with large toxic assets accumulated during the crisis
should be split into smaller units, according to a senior Fed official.
Thus they won’t be able to use the “too big to fail” excuse to get
another government bailout.
“We recommend that TBTF (too-big-to-fail) financial institutions be restructured into multiple business entities,” Reuters quotes Richard Fisher, President of the Dallas Federal Reserve Bank.
The Fed official identified 12 “megabanks” with above $250bn in
assets that could be classified as “too big to fail”. Among the
so-called “behemoth” institutions are JPMorgan Chase, Bank of America,
Goldman Sachs, Citigroup and Morgan Stanley.
Under the proposal only the commercial banking could rely on federal
help, with such units as insurance or brokerage relying on their own
resources. Customers of banking businesses other than commercial would
need to sign an official disclaimer, proving they understand the risks.
Fisher didn’t specify the exact limits for the size of the banks, saying
that would be up to market forces.
“They [huge banks] should completely separate investment banking
from commercial banking, that’s the only thing that matters. Otherwise
commercial banks are run by hedge funds which is crazy,” agreed Robert Allen, professor of Economic History at Oxford University, talking to Business RT.
On a global scale, the biggest central banks have injected above
$11tn into the world financial system since the start of the financial
crisis in 2007, according to Wall Street Journal (WSJ) calculations. A
lion’s share of this money has been aimed to help banking giants remain
While representing just 0.2% of the country’s total 5,600 banks, this
dozen “megabanks” account for 69% of all US banking assets.
Spending billions on the rescue of a handful of banks creates “an
unfair tax” on ordinary people and prevents monetary policy from working
smoothly, Fisher concluded.
Tired by the need to inject massive amounts of money to help huge
lenders out of a bankruptcy, monetary authorities across the globe have
already started to urge banks towards better self-sufficiency. Stress
tests aimed at identifying whether a lender would have enough funds to
cope with an unexpected shock now seem to be turning into regular
practice. Most recently, the
Central Bank of Russia (CBR) said it would release recommendations for
the country’s lenders on how to create ‘emergency plans’ in case of
another banking crisis. CBR wants Russian banks to make up such
plans to be sure they will have enough reserves and planning to tackle a
crisis without state aid.
‘Too big to fail’ banks must be broken up – Fed official — RT.
Thanks to: http://2012indyinfo.com