2 ms·

Well, yes and no. The above is true for a subset of banks in a subset of countries. But it is also not an argument that banking is somehow a bad business idea i

Well, yes and no. The above is true for a subset of banks in a subset of countries. But it is also not an argument that banking is somehow a bad business idea in general. Banking is one of the oldest business models, and there are many banks that are hundreds of years old and has weathered numerous crises. That alone should settle the argument if banking is a valid business idea or a dumb one that is doomed to fail without government backing. The banking business is risk management. Execution is everything. Compare Silicon Valley Bank with BoA. They aren't remotely similar in the risk exposure. Or compare Scandinavian banks with Italian. There's just no comparison. Regulation has kept the former in check, and is so well capitalized it will survive anything, and this is part of how to properly manage risk when, as you rightly say, the banks are too big to fail. Taleb is interesting and thought provoking to some, but not remotely scientific. It is collection of anecdotes, not principles to base your entire society on. Plenty of banks work well and has done so for centennia.

mikhailfranco 3y ago
Fed currently supporting US banks to the tune of ~$110bn, following failure of 3 medium-sized banks: SVB, Silvergate, Signature. Many/most US banks are technically bankrupt at MTM asset prices, because of losses on bonds, as the fed raises interest rates (ZIRP was not forever?). Some claim they will Hold To Maturity (HTM), others are grabbing Fed money with both hands to cover MTM losses: https://fred.stlouisfed.org/series/H41RESPPALDKNWW https://fred.stlouisfed.org/series/H41RESPPALDKNWW
mikhailfranco 3y ago
All major European countries have had banking crises in the last 20 years. Spanish & Italian banks are infamous. The oldest bank, BMPS went down. https://en.wikipedia.org/wiki/Banca_Monte_dei_Paschi_di_Siena https://en.wikipedia.org/wiki/Banca_Monte_dei_Paschi_di_Sien... Swiss banks - CS bankrupt, merged with UBS. German banks - DB and Commerzbank are both basket cases, with stock prices bouncing along the bottom, and only avoid bankruptcy because of the implicit ECB backing ( Whatever it takes ). Dodgy state-run French banks propped up by the bailout of Greece - no money went to Greece, it just went into an ECB account, then direct to creditors, mostly French banks! Many EU sovereigns and banks and companies have been bailed out by ECB buying risky assets, even commercial bonds, etc. (Fed is also authorized to buy junk bonds, hence tight spreads v. triple-A paper). UK banks collapsed in 2007-9, with run on Northern Rock. The banking system was effectively nationalized for a decade, and many banks merged into the TBTF incumbents. Recently, the BOE had to bail out pension funds because of MTM losses on bonds. https://www.theguardian.com/business/2022/sep/28/bank-of-england-in-65bn-scramble-to-avert-financial-crisis https://www.theguardian.com/business/2022/sep/28/bank-of-eng...

mikhailfranco 3y ago

Fed currently supporting US banks to the tune of ~$110bn, following failure of 3 medium-sized banks: SVB, Silvergate, Signature. Many/most US banks are technically bankrupt at MTM asset prices, because of losses on bonds, as the fed raises interest rates (ZIRP was not forever?). Some claim they will Hold To Maturity (HTM), others are grabbing Fed money with both hands to cover MTM losses: https://fred.stlouisfed.org/series/H41RESPPALDKNWW https://fred.stlouisfed.org/series/H41RESPPALDKNWW

mikhailfranco 3y ago

All major European countries have had banking crises in the last 20 years. Spanish & Italian banks are infamous. The oldest bank, BMPS went down. https://en.wikipedia.org/wiki/Banca_Monte_dei_Paschi_di_Siena https://en.wikipedia.org/wiki/Banca_Monte_dei_Paschi_di_Sien... Swiss banks - CS bankrupt, merged with UBS. German banks - DB and Commerzbank are both basket cases, with stock prices bouncing along the bottom, and only avoid bankruptcy because of the implicit ECB backing ( Whatever it takes ). Dodgy state-run French banks propped up by the bailout of Greece - no money went to Greece, it just went into an ECB account, then direct to creditors, mostly French banks! Many EU sovereigns and banks and companies have been bailed out by ECB buying risky assets, even commercial bonds, etc. (Fed is also authorized to buy junk bonds, hence tight spreads v. triple-A paper). UK banks collapsed in 2007-9, with run on Northern Rock. The banking system was effectively nationalized for a decade, and many banks merged into the TBTF incumbents. Recently, the BOE had to bail out pension funds because of MTM losses on bonds. https://www.theguardian.com/business/2022/sep/28/bank-of-england-in-65bn-scramble-to-avert-financial-crisis https://www.theguardian.com/business/2022/sep/28/bank-of-eng...