Tags: Wolf | banks | big | fail

FT's Wolf: Large Banks Remain Too Big to Fail

By    |   Wednesday, 16 Apr 2014 05:32 PM

After the 2008-09 financial crisis, governments around the world have sought to reform their banking systems so that the largest banks would no longer be "too big to fail."

The effort hasn't succeeded, says Martin Wolf, a columnist for the Financial Times.

"A question about post-crisis regulation is whether this risk [too big to fail] is gone. The answer is no. . . . No solvent government will allow its entire banking industry to collapse."

Editor's Note:
38 Trades That Could Turn $1,000 Into $49,000


Wolf notes that even Bank of England Governor Mark Carney agrees with that assessment. "Firms and markets are beginning to adjust to authorities’ determination to end too big to fail. However, the problem is not yet solved," Carney said in a statement last year.

Subsidies to banks are a problem, Wolf explains, citing an April report from the International Monetary Fund. "Estimated subsidies remain more elevated in the euro area than in the U.S.," the report says. "All in all, however, the expected probability that systemically important banks will be bailed out remains high in all regions."

Another issue is that the banking system has grown even more concentrated since the financial crisis, with the big banks growing even bigger, Wolf notes.

"Systemic risks are the issue. Capital requirements related to such risks are needed, be the components of the system a few giants or a multitude of minnows," he concludes.

Meanwhile, former investment banker Sanjay Sanghoee argues that too big to fail beats the alternative — "financial catastrophe," he writes in Fortune.

"Too big to fail doesn't exist because we have sympathy for Citigroup or JPMorgan Chase, or because Wall Street is too powerful. It exists to preserve the integrity of the global financial system."

Editor's Note: 38 Trades That Could Turn $1,000 Into $49,000

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After the 2008-09 financial crisis, governments around the world have sought to reform their banking systems so that the largest banks would no longer be "too big to fail."
Wolf, banks, big, fail
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2014-32-16
Wednesday, 16 Apr 2014 05:32 PM
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