Too Big to Fail

[OzzyKP]

How do we solve the issue of Too Big to Fail?

I don't really know. It seems to be a problem that won't go away. Back in 2008 the major banks were so big and so intertwined with the economy that they would bring the whole thing down if one went under. Since then they have only gotten bigger. I see that the top 10 banks hold about 80% of the US banking assets. Up, I believe, since 2008.

Now, with the danger of big sovereign debt defaults in Europe, there is more talk about banks going under and the dangers of that to the world economy. So there are more bailouts.

What is the long term solution here? I created a poll.

[Hauldren Collider]

I don't see a poll.

[OzzyKP]

Took me a while to fit the choices to be under 100 characters. They were far wittier before.

[Aeson]

The way to fix it all is to make me too big to fail too.

[Bugs ****ing Bunny]

This is too simplistic a question.

It makes far more sense to address the following points-

1- What protection should be in place to protect customers, in both retail and investment banking?

2- What risk management measures should be in place for both?

3- Should there be clear separation of retail and investment banking?

4- What should be the extent of regulation?

[OneFootInTheGrave]

break up... and tighter regulation so that they can fail without bringing the whole economy down with them... easier said than done, and only a part of the wider problem, but is one of the points that need addressing.

[Dinner]

Too big to fail simply means too big. Break them up. As an added bonus this would create additional competition thus helping bring down prices for consumers. Restoring Glass-Steagal so that retail banking, insurance, and investment banking are kept completely separate would also help to reduce systemic risk as the excessive risk taking of the investment banks wouldn't endanger the retail banks. Keep the investment banks entirely separate and allow them to take what ever risks they want since allowing them to fail won't endanger retail banks or the money of regular people. That way investment banks can fail without putting the entire national economy at risk.

[giblets]

I think we can figure this out. Oerdin, which of the options do you like the least?

[C0ckney]

it's not that complicated really.

- break them up and amend anti-trust laws to prevent them growing past a certain size.
- seperate commerical and investment banking.
- make investment banks trade as partnerships.

there's lots of other stuff that could be done in addition like a financial transactions tax and criminal penalties for mismanagement, but those three are the main ones.

[Uncle Sparky]

I like Canada's solution (as usual). The government of Canada insures $100,000 per person (with some exceptions). Theoretically, if a bank were to fail, each depositor would retain $100,000 of money they had in regular Canadian dollar accounts.
This would probably cover most of the money of most of the bank's customers. The bank itself might fail, or might be forced to restucture. We also have very strict banking rules, although the current federal government has indicated that they want to 'level the playing field to allow our banks to succeed in international markets'... in other words, deregulate the banks.
The world economic problems will prevent Harper from moving ahead, which will keep our banks from going the way of Americans.
It should be pointed out to non Canadians that the strict banking laws were put in place by Liberal governments, not Conservatives. The Conservatives, of course are taking credit.
One thing the Cons are doing is allowing a large number of new bank to start. Most are attached to retail or insurance companies. What could possibly go wrong?

So on the OP, provide government guarantees on a reasonable deposit amount for each customer, and let the COMPANIES fail.

[OzzyKP]

The US already does that. Regular folks losing their checking accounts was never a part of the financial crisis.

[Uncle Sparky]

The US already does that. Regular folks losing their checking accounts was never a part of the financial crisis.

Why did they give money to the banks? Let them fail. The option seemed to be to award useless bank managers.
As for the size of banks, until recently Canada has only had 7 or 8 banks. Of course we have dozens if not hundreds of credit unions and caisse populaire.

[Hauldren Collider]

It's called the FDIC and it dates back to FDR.

[Metaliturtle]

The banks should be allowed to fail.

[Combat Ingrid]

Banking establishments are more dangerous than standing armies.

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