http://finance.fortune.cnn.com/2012/01/18/big-banks-break-up-bair/?iid=SF_F_Lead
Sheila Bair begins by talking about the recent desire American's have to downsize. The public is quickly becoming fearful of massive organizations, and banks are no exception.
Bair highlights many reasons why downsizing of mega banks would be useful:
- Increase shares to shareholders
- "Capital requirements are going up significantly for mega-institutions"
Obviously, however, these megabanks are hesitant:
- They argue that economies of scale can lower cost for customers
- Large scale operations is necessary to meet the financial needs of multinational corporations
What do you think? Should our government have the ability to break up these massive banks?
I think that the governments should the ability to break up these banks. If they don't start to break up these big banks there will be a rightward shift in politics and increasing corporate power.
ReplyDeleteI think breaking up these banks represents certain benefits in terms of risk management. When a small number of banks control the majority of the country's financial assets, risk is concentrated. Naturally, regulators are going to demand higher capital requirements for banks that control this many financial assets. The interconnectedness of these banks represent an increase in risk as a default would be contagious to everyone they do business with.
ReplyDeleteI believe that banks should be broken up when they reach a certain size. When there are just a few banks in control, they make decisions because they have no power to stop them. This is were the bank needs to step in.
ReplyDeleteI agree with you, Jake. Good point.
ReplyDeleteI also believe that downsizing more than just the banks will help the economy. Buying local is always good because it keeps the finances in the local economy and can reduce the costs of many important issues including the environmental impact and transportation costs. Society should work to break apart more than just the big banks.
ReplyDeleteI think that giving the government the ability to split up these banks would create a large decrease in incentives for banks to grow and utilize economies of scale out of fear of intervention. I'm not saying that all of these large banks is necessarily a good thing overall, but there are clear benefits that a large bank can utilize that a small bank cannot. I think this decrease in incentives could possibly cause more harm then the ability of governments to breaking up banks could compensate for, or at least that is part of the argument that I see.
ReplyDeleteI don't believe that it is the right thing for the government to downsize banks for getting to big. Banks became as big as they are because they were successful. With time I think they will again be able to be successful regardless of size.
ReplyDelete