Friday, May 8, 2009


"Economics of scale for banks are exhausted well before a balance sheet size of $100bn is achieved. Synergies between commerical banking and investment banking activities are essentially non-existent. ... Chinese walls in banks, auditing companies, rating agencies and other financial enterprises don't stop any information that is commerically profitable from getting across the boundaries. ... There is no 'too-interconnected-to-fail' problem separate from the 'too-big-to-fail' problem. If I operate on a small scale, I and my interconnections are immaterial from a systemic stability perspective. ... The second reason is that financial supermarkets can shelter non-systematically important profitable operations under the heavily subsidised public umbrella provided by the state to a few systematically important operations (deposit-taking, payment, clearing and settlement systems, counterparty and custodial services) through lender of last resort support", William Buiter at the FT, 17 April 2009.

I agree with Buiter. Bust up the banks.

1 comment:

Anonymous said...

Buiter has captured the "anti-TBTF" brief in several precise strokes:

1. Synergies between commercial and investment banking are non-existent

2. Cash bond, forex and derivative desks profit on the inside information of commercial banks... Citi is a prime example... what are the boundaries between the FX (trades executed for commercial customers as a global money center bank) and rates desks?

3. Small scale interconnections don't collapse the stability of the system when they fail.

4. Publicly subsidized banking activities like deposit taking (FDIC) are sheltering risk taking principal trading at TBTF institutions.

How about melting these jumbo risk machines? And wouldn't inflation do that naturally?