4 ms·
> you can quickly run out of banks Not that individual depositors get a say, but isn't this (the consolidation of banks to relatively few players) the larger s
by abeppu 5y ago
> you can quickly run out of banks
Not that individual depositors get a say, but isn't this (the consolidation of banks to relatively few players) the larger source of risk?
In the US, my understanding is that there are a lot of small local banks, but that they are all dependent clients on a much smaller number of larger banks. If I go to my local credit union, I don't think I have a straight-forward way of knowing which mega-bank they depend on, if any. If "per-bank" limits are meant to spread out risk, isn't this undermined by consolidation? Or do I misunderstand the structure of mutual dependence between banks?
- eru 5y agoThe US has a history of unit banking. Ie super small banks that only have one branch in a single city. That's because branch banking used to be banned. Predictably, the US also had a history of bank instability. Canada, by comparison, has enjoyed stable banks with many branches diversified over the whole country for centuries.
- vdqtp3 5y agoI get that this is pedantic, but the first bank in Canada was established in 1817. While that's just over two centuries ago, that wasn't a "branch bank", it was literally the first bank in the country. I'd ask for sources if you want to make claims that broad.
- eru 5y agoSee eg https://www.alt-m.org/2015/07/29/there-was-no-place-like-canada/ https://www.alt-m.org/2015/07/29/there-was-no-place-like-can... Well, 'centuries' interpreted as an integer multiply of 100s of years was probably overstating things a bit.
- abeppu 5y agoBut so your view is that small banks are prone to instability in virtue of being small. I get that with many banks, the probability that at least one has problems increases to 1. My hypothesis was that large banks are risky in virtue of being concentrated; though in most years they may all be fine, occasionally big bets made by a single institution can impact a large minority of depositors. I suppose in a context where the state is prepared to prop up banks in times of crisis, perhaps propping up a few big ones is less complex than trying to support many small ones?
- eru 5y agoThe Canadian system I talked about had no government propping up of banks. See also https://www.alt-m.org/2015/07/29/there-was-no-place-like-canada/ https://www.alt-m.org/2015/07/29/there-was-no-place-like-can...