Economy

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The Myth of Resolution Authority

Policy makers should acknowledge that current regulation of banks' capital and international agreements to regulate the banks are insufficient, an economist writes.

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1.
joe
NY
March 31st, 2011
10:25 am
These are not bank holding companies. They are global casino conglomerates, run by the most powerful men on the planet, mafia dons, with their henchmen deeply embedded in the governments of every major country in the world. If a leader tries to cross them, they threaten to destroy the economy of that country, with extreme prejudice. The power they just asserted, to come out of the calamity they just brought down upon us with, not less, but even more power, a more crushing stranglehold on the throat of the political leaders of the developed world, is stunning and terrifying and historically unprecedented. You think they were going to let a few punks in Congress prevent them from fighting to the death, prevent them from using the threat of global financial apocalypse in the future in order to dump their losses on the plebes when crises inevitably occur? This is the future, Professor. If they go down, they are taking us with them. That's the new reality.
2.
Alex
Chicago
March 31st, 2011
10:50 am
At what point is the cost of repeated boom-bust bank failures not worth it? If bailouts are a repeated event, then I'm not sure we should have ever put a backstop up in the first place.

If they cannot agree to safer terms, then next time they shoot themselves in the foot, we must let them fail.
3.
Jonathan
NYC
March 31st, 2011
1:40 pm
Another important point is how capital is defined. Many banks in the US have relied on trust preferreds to raise capital. Some analysts would say that this is a thinly disguised deposit.
4.
Joyce Mannis
Harvard, MA
March 31st, 2011
1:42 pm
A Times writer a week or so ago opined sarcastically that not only are the big banks too big to fail, they are now "too big to regulate." If this is so, then these banks are truly rogue, outside society and operating with impunity. Why is there no effective "lobbying" effort on behalf of the kind of regulation that is clearly necessary? I can't believe Geithner is in the tank but it sure seems so sometimes. Whoever it was who said that if the logical end of comunism is the gulag, then the logical end of capitalism is the Mafia should have gotten a Nobel prize.
5.
IfAtFirst
New York, NY
March 31st, 2011
1:42 pm
How quickly Adam Smith's Invisible Hand Theory has decayed into an offer you can't refuse from a poorly parented misanthrope !
6.
Zzzz
United States
March 31st, 2011
5:14 pm
The Government just needs to stop regulating banks... They can't do it anyways, and it really doesn't benefit anyone, despite what the common American are told to believe...

No regulation, let the banks do business, but at the same time if they fail, they fail.
7.
Paul A. Myers
Claremont CA
March 31st, 2011
5:55 pm
Let's set up US domestically chartered banks with strict capital requirements, close regulation of all assets owned by the bank, guaranteed deposits limited to $100,000, all bonds subject to adjustment by the FDIC to cover deposit liabilities, etc. Then let's require that all the worldwide holding companies incorporate offshore even if they "headquarter" in New York or other US financial center. Then "let's let capitalism be capitalism" and leave the holding companies to the tender mercies of the benevolent free market forces of the worldwide capital markets. Let the bankers earn their bonuses the old fashioned way by being responsible for their own risks. We'll see if the worldwide investors are as big as suckers as the US taxpayers.
8.
GM
Birmingham,Alabama
March 31st, 2011
7:17 pm
Excellent sugestions,
but how does one determine what the actual higher amount must be?

Peace,GM
9.
Joe Values
Chicago, IL
March 31st, 2011
7:17 pm
These are for profit companies, in which highly compensated individuals should be held accountable for their management decisions. They get tremendous bonuses no matter how well they perform. Let them fail. If you bought their stock, as an owner you should have kept a better eye on the performance of your management. If they acted in a non-prudent manner, then make them accountable. But stop making the US taxpayer responsible for the failure of bad management. We have bailed them out once, now they really know they are too big to fail. Its just a matter of time before we have a new crisis, because no one is going to let them fail. Accountability is out the window.
10.
John H.
Northern California
April 1st, 2011
10:05 am
The main problem with 'too big to fail' will be 'too big to save'. All we've done is move to 'too large to care' http://somewhatlogically.com/?p=51 Look at the Commissioner of Currency's quarterly reports and ask what is going to happen to all that sub-investment grade debt held by the top five banks, especially if the tea party financial madness drives us into a double dip recession? http://www.occ.gov/publications/index-publications.html Note especially the quarterly report on derivatives. The international problems were evident a long time ago, and nothing has been done. Basel II is a cruel joke.
11.
Emory Callaway
Chicago , Illinois
April 1st, 2011
10:37 am
The ugly part about this scenario is when we hand the Treasury keys to these international brokerages/banks , as GWB and Congress did , where does our money go ? We already have record amounts of our money leaving our shores .
12.
jms175
New York, NY
April 1st, 2011
3:10 pm
I totally agree. I can speak from some experience in saying that not only are these banks too big too fail or regulate, they are too big too manage. The quote about Citi is absolutely correct and it is a key to why the crisis happened in the first place: that banks became too big to effectively manage their risk. To my way of thinking there are two options:

1) impose a marginal capital requirement that increases as the size of the firm does. Anything above $100bln in assets should carry a 25% capital charge.

2) Reimpose Glass-Stegall. I would argue that the reason for the speed and ferocity of the crisis and the need for a bailout out was that investment banks and commercial banks were allowed to affiliate. While that may not have prevented a housing bubble, you would have had something more like the S&L crisis. Bad but not life-threatening.
13.
Winston Smith 8495
Waterford,NY
April 1st, 2011
6:42 pm
We need to reclaim our democracy and demand our representatives who's job it is to represent the American people not the monopolistic, multinational corporate banks...our banking laws need to be rewritten and the several very large banks which control banking in the U.S. need to be broken up.
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