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There is also that the largest banks have the implicit support of the federal government, and therefore have an artificially low cost of capital relative to sma
by damoncali 14y ago
There is also that the largest banks have the implicit support of the federal government, and therefore have an artificially low cost of capital relative to smaller banks (because the Feds will prevent a default). That benefits someone somehow, although it can be hard to figure out who.
- kerno 14y agoThis, for me, is ultimately the major reason that private banking institutions, as they are currently formed, must be changed. The implicit and even explicit backing of a government of a private institution, forced as a result of that bank's size and market impact, allows that institution to take larger risks and to privatise profits that are generated as a result of the public's support. This is a major unintended consequence of saving big banks during the financial crisis.
- chii 14y agoyep, privatized profit, but socialized losses.
- danenania 14y agoNot all that hard to figure out who: http://www.theatlanticwire.com/business/2013/02/banker-bonuses-vs-american-household-incomes/62537/ http://www.theatlanticwire.com/business/2013/02/banker-bonus...
- eru 14y agoIt is interesting to see that banks' employees and not, say, their shareholders are able to extract the benefit.
- damoncali 14y agoThat's kind of how banks work, too big to fail or not. You don't see the same thing happening at GM, for example, who also benefits from governmentally subsidized cost of capital.
- RougeFemme 14y agoIt benefits the top management of the big banks. (In theory, the stockholders benefit too if they let more of the profits trickle down to the stockholders.) They will take more risks than they otherwise would. They figure that if the risk pays off, they become richer. If the risk does not pay off, they don't have to worry about losing anything (?everything?) financially because the Feds will bail them out.