Another angle on the Banking Mess…..
Wow, is there a lot of good commentary and theories going around on the banking world. Let me just say a couple of things:
- If the government decided that the stress test would calm things down, I don’t think they did too well with that.
- Rather than wondering and worrying about which banks passed and which ones didn’t, the speculation is now on who can raise the money, who can’t, and how in the world is Bank of America going to raise $35,000,000,000?
This article by Rob Cox and Dwight Cass brings up the concept of mergers among the smaller ones in the “Gang of 19″ as a way to solve capital problems. In theory, that seems to be a plausible idea, but ask yourself one question:
Do we need more really big banks or do we need smaller banks? Aren’t the Citibank/B of A/Wells Fargo/Chase size banks a large part of the problem? A disproportionately large part of the problem?
Hmmm……
Tom Vanderwell
Breakingviews.com – Tests May Spur Bank Mergers – NYTimes.com
For America’s regional banks, it’s merger time. With the results of the stress tests now public, it’s clear that none of the country’s largest financial institutions will fail. Those that need capital will find it, even if it takes de facto nationalization. But that doesn’t mean the banking system is robust.A handful of regional institutions received the equivalent of barely passing grades — including SunTrust, Regions Financial, KeyCorp and Fifth Third. These banks have more than $500 billion of assets among them. Even if they can raise the extra capital that regulators say they need, they may not be in a position to act as engines of credit creation — a requirement for their local economies to pull out of the recession.
Moreover, if they can’t raise private money over the next six months, they may need to have the government take significant, or even majority, stakes in them.
One risk is that they will stagger along, zombielike, for years. There’s an alternative: Let the strong eat the weak.
