5 ms·

This is an excellent point. I would put a system in place that makes it clear that banks have a choice of a) Splitting before they get to big to fail or b) Acce

by quonn 12y ago

This is an excellent point. I would put a system in place that makes it clear that banks have a choice of a) Splitting before they get to big to fail or b) Accepting that if they grow larger, they can always be nationalized if they make a mistake that would cause them to go bankrupt. The problem is, that currently nationalization is only possible in most countries, if you fully pay the owner. Changing this would in some countries require constitutional changes. I think having a special rule for banks and the option to split would be a feasible change.

josteink 12y ago
If the company/bank goes bankrupt, the value of the company is by definition zero. What is there to pay the owners?
- antocv 12y ago
  What the taxpayers have payed to keep the bank profitable. Just, you know, the taxpayers are not the owners, because . Hm, maybe it doesnt really matter if taxpayers would have become the owners, because in any case they would have payed for their losses but the profits would not magically find their way into taxpayers pockets, instead it would be some new term instead of owners like "facilitators" "workers". In the end, money doesnt really matter, what matters is which people take decisions concerning all other people, power.
  - vidarh 12y ago
    The point is that in the situations where nationalisation - or near nationalisation - to prevent bankruptcy is worthwhile, the effective price is going to be low, however you structure it. For starters, the government can go to the banks shareholders and tell their shares are going to be worth $X or they won't put money in and the business will go bankrupt. If the shareholders manage to find another investor, then great. In the UK, this happened with e.g. Royal Bank of Scotland, where the government gradually acquired a larger proportion of the bank as it provided capital until it owned the vast majority (in 2012 it owned about 82% - I don't know what it stands at now). While nationalisation of RBS was certainly not cheap in terms of pounds, it was firesale prices in terms of the size and turnover of the business, because the government took on massive risk as well. But the key part is that by providing the cash infusion in return for shares, the government is also participating in the upside if they manage to turn the bank around, and shareholders took a substantial hit in the form of massive dilution (though they are set to recover quite a bit as the bank recovers).
ArkyBeagle 12y ago
Calomiris and Haber ("Fragile By Design") have run the natural experiment between the U.S. and Canada over the 2008 bubble period. The conclusion is the opposite of yours - Canada really just has the one bank, and sailed right through the crisis because they didn't hold as many rotten mortgages. And in a way, the big banks are effectively nationalized in the U.S. We do maintain parallel governance structures because fully nationalized banks ( like the Bank of England in Britain's Mercantilist heyday ) are ... well, mercantilist.
- joelwilliamson 12y ago
  > Canada really just has the one bank Is this supposed to be a figure of speech suggesting Canadian banks policies are so similar they are essentially the same bank? The three largest of the Big Five (RBC, TD and Scotia) are so similar in size none of them can even be said to lead the market.
  - ArkyBeagle 12y ago
    No, it was me misremembering. You are absolutely 100% correct; my bad. Thank you for the correction, Joel. The pertinent EconTalk is here: http://www.econtalk.org/archives/2014/02/calomiris_and_h.html http://www.econtalk.org/archives/2014/02/calomiris_and_h.htm...

by quonn 12y ago

josteink 12y ago

If the company/bank goes bankrupt, the value of the company is by definition zero. What is there to pay the owners?

antocv 12y ago
What the taxpayers have payed to keep the bank profitable. Just, you know, the taxpayers are not the owners, because . Hm, maybe it doesnt really matter if taxpayers would have become the owners, because in any case they would have payed for their losses but the profits would not magically find their way into taxpayers pockets, instead it would be some new term instead of owners like "facilitators" "workers". In the end, money doesnt really matter, what matters is which people take decisions concerning all other people, power.
- vidarh 12y ago
  The point is that in the situations where nationalisation - or near nationalisation - to prevent bankruptcy is worthwhile, the effective price is going to be low, however you structure it. For starters, the government can go to the banks shareholders and tell their shares are going to be worth $X or they won't put money in and the business will go bankrupt. If the shareholders manage to find another investor, then great. In the UK, this happened with e.g. Royal Bank of Scotland, where the government gradually acquired a larger proportion of the bank as it provided capital until it owned the vast majority (in 2012 it owned about 82% - I don't know what it stands at now). While nationalisation of RBS was certainly not cheap in terms of pounds, it was firesale prices in terms of the size and turnover of the business, because the government took on massive risk as well. But the key part is that by providing the cash infusion in return for shares, the government is also participating in the upside if they manage to turn the bank around, and shareholders took a substantial hit in the form of massive dilution (though they are set to recover quite a bit as the bank recovers).

ArkyBeagle 12y ago

Calomiris and Haber ("Fragile By Design") have run the natural experiment between the U.S. and Canada over the 2008 bubble period. The conclusion is the opposite of yours - Canada really just has the one bank, and sailed right through the crisis because they didn't hold as many rotten mortgages. And in a way, the big banks are effectively nationalized in the U.S. We do maintain parallel governance structures because fully nationalized banks ( like the Bank of England in Britain's Mercantilist heyday ) are ... well, mercantilist.

joelwilliamson 12y ago
> Canada really just has the one bank Is this supposed to be a figure of speech suggesting Canadian banks policies are so similar they are essentially the same bank? The three largest of the Big Five (RBC, TD and Scotia) are so similar in size none of them can even be said to lead the market.
- ArkyBeagle 12y ago
  No, it was me misremembering. You are absolutely 100% correct; my bad. Thank you for the correction, Joel. The pertinent EconTalk is here: http://www.econtalk.org/archives/2014/02/calomiris_and_h.html http://www.econtalk.org/archives/2014/02/calomiris_and_h.htm...