Tags: Bove | banks | Chinese | too big to fail

Bove: Breaking Up Big Banks Would Let ‘Chinese Take Over Global Financial System’

By    |   Wednesday, 17 April 2013 11:49 AM

Breaking up the big U.S. banks would ultimately let Chinese banks take over as leaders of the world financial system, warns banking analyst Dick Bove.

“You’ve got four big banks in the United States and all the United States Congress wants to do is rip them apart,” Bove told CNBC. “If you rip apart all the big banks in the United States, while the Chinese banks are growing rapidly, then the Chinese will take over the global financial system.”

Legislators who Bove called pro-Chinese “want to destroy the position of the United States in the global financial markets.”

Editor's Note: The Final Turning Predicted for America. See Proof.

“There are four Chinese banks that make more money than any bank in the United States makes. They’re growing rapidly. They are supported by the government.”

The Peoples’ Bank of China has $3.5 trillion in assets, more than any U.S. bank and more than the Federal Reserve, explained Bove, an analyst with Rafferty Capital.

“It’s easy for people to understand when you say China is building a blue-water navy,” Bove said. “But nobody seems to understand what the Chinese banks are doing to the American banks.”

The large banks are having trouble countering arguments for breaking them up, writes Simon Johnson, a professor at MIT’s Sloan School of Management and former chief economist at the International Monetary Fund, in an article for Bloomberg.

Sens. Sherrod Brown, D-Ohio, and David Vitter, R-La., proposed a bill that would encourage the large banks to split up.

In response, Goldman Sachs released a report in the bill’s potential impact.

“Yet instead of providing any kind of rebuttal to the proposals in Brown-Vitter, the report may strengthen the case for breaking up the six megabanks, while also requiring that they and any successors protect themselves with more equity relative to levels of debt,” Johnson wrote.

The report says the bill would create an incentive for the big banks to break up. However, they fail to explain why that would be bad, according to Johnson.

The Goldman Sachs report offers several poor arguments, Johnson said. For instance, they banks hold capital as if it were an asset on the balance sheet.

“Banks don’t hold capital. The proposals are concerned with the liability side of the balance sheet — specifically, the extent to which banks fund themselves with debt relative to equity (a synonym for capital in this context),” he explained.

“Higher capital requirements push companies to increase their relative reliance on equity funding, thus increasing their ability to absorb losses without becoming distressed or failing. If the transition is properly handled, there is no reason that more equity funding would translate into lower lending.”

Editor's Note: The Final Turning Predicted for America. See Proof.

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Breaking up the big U.S. banks would ultimately let Chinese banks take over as leaders of the world financial system, warns banking analyst Dick Bove.
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Wednesday, 17 April 2013 11:49 AM
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