Tags: Farr | bank | fail | capital

Money Manager Farr: 'Too Big to Fail' Conundrum Only Getting Worse

By    |   Tuesday, 18 February 2014 09:57 AM

Efforts to address the "too big to fail" problem for banks haven't succeeded, as the biggest banks have only grown larger, says Michael Farr, president of investment management firm Farr, Miller & Washington.

The biggest 20 banks now hold 62 percent of U.S. deposits, up from 46 percent in 2003, according to Barclays Capital, he writes in a commentary for CNBC. And the total market cap of the top 25 banks is 20 percent larger than it was before the financial crisis.

Regulators so far have approached the too big to fail risk by requiring higher capital and liquidity levels at banks considered systemically important financial institutions (SIFIs), Farr notes.

Editor’s Note:
These 38 Dates Are Key to Bagging $313,038

In addition, the Dodd-Frank financial reform law contains an Orderly Liquidation Authority (OLA), which allows regulators to put failing SIFIs in receivership so they can be liquidated without hurting the financial system.

But higher capital requirements and the OLA are unlikely to do the trick, Farr argues.

"It is highly unlikely that any type of SIFI liquidation . . . would be an easy task. The high degree of interconnectedness among our large financial institutions ensures that this process would have many negative consequences for the global economy."

Bank analyst Richard Bove of Rafferty Capital Markets sees things differently than Farr does. He says the problem is that regulators are trying to weaken the country's largest banks.

"The regulators are pursuing a theory that ignores the growth of profits and the need for positive cash flows," he writes in a separate commentary for CNBC. "They care little if they force banks to divest businesses that generate profit."

Editor’s Note: These 38 Dates Are Key to Bagging $313,038

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Efforts to address the "too big to fail" problem for banks haven't succeeded, as the biggest banks have only grown larger, says Michael Farr, president of investment management firm Farr, Miller & Washington.
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Tuesday, 18 February 2014 09:57 AM
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