Banks should be made smaller to minimize systemic risk.

[admin]

Prospect magazine carries an essay by Jonathan Ford (comment editor at Reuters) on “too big to fail” — How To Shrink The Banks.

The conclusion:

If these measures were fully implemented, the result should be that banks would become smaller again. For if the costs of being big outweighed the benefits, then bank executives would be under pressure from markets to shrink. Those banks that insisted on operating on a global scale would have to prove to their investors that it was worthwhile. Simply by making it a regulatory objective to limit unnecessary size, the powers that be would be sending a message. And if it doesn’t work? Then the only option would be to disprove Bove’s assessment —that some organisations cannot be eliminated— in a cruder fashion. Governments would have to insist that banks could not grow bigger than a certain size. That might be unsatisfactory, but it would be necessary to protect taxpayers from the blunders of pointless big banks.


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