Tags: Citi | Too Big to Fail | Doctrine | Dangerous

Citi: Dumping Too Big to Fail Doctrine Is Dangerous

Tuesday, 23 Feb 2010 09:04 AM

Citi analyst Ryan O'Connell says that passage of a bill to abolish the 'Too-Big-to-Fail' doctrine could slam the credit ratings of big banks.

“In the short-term, passage of such legislation could lead to multiple-notch downgrades for several institutions including Bank of America, Goldman Sachs and Morgan Stanley,” O’Connell writes in a note to investors.

“At this point, we think that the incremental impact on funding costs is not likely to be severe, and it might not last long. Market conditions have stabilized and, in our opinion, Bank of America, Goldman and Morgan Stanley are not likely to require additional government support in the current environment.”

O’Connell says that if the legislation passes and downgrades result, the potential consequences “include reduced access to the short-term funding markets and increased collateral requirements related to derivative transactions and repo financing transactions.”

However, O’Connell notes, the fact that big banks have aggressively reduced the amount of commercial paper they hold offers them some protection should their credit ratings be slammed — which leads him to recommend buying the senior bonds of Bank of America, Goldman Sachs, and Morgan Stanley.

U.S. Sen. Bob Corker said Monday he’s optimistic there will be a banking bill that addresses the idea that financial institutions are too big to fail, the Chattanooga Times Free Press reports.

“I can’t imagine there are many Americans who don’t want to see us create a mechanism so when large institutions fail, they actually fail,” Corker said.



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Citi analyst Ryan O'Connell says that passage of a bill to abolish the 'Too-Big-to-Fail' doctrine could slam the credit ratings of big banks. In the short-term, passage of such legislation could lead to multiple-notch downgrades for several institutions including Bank of...
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2010-04-23
Tuesday, 23 Feb 2010 09:04 AM
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