Too-Big-To-Fail Banks
BREAK ‘EM UP Reason #4: TBTF Banks Use the FDIC to Cushion Against Losses
What a difference a credit rating notch can make. The biggest banks have used their FDIC-guaranteed, taxpayer-supported banking subsidiaries and the bank subsidiary’s credit rating advantage to reduce the capital behind their derivatives activities required by regulators to cushion against potential losses. This is another way that credit ratings influence derivatives through the taxpayer guarantee.…
Read MoreBREAK ‘EM UP Reason #3: The U.S. Bankruptcy Code Was Changed to Favor Derivatives Over Loans
A law passed during the height of the bubble in 2005 altered the treatment of derivatives in the U.S. Bankruptcy Code to greatly favor derivatives counterparties over other creditors. The law’s title was, ironically, “The Bankruptcy Abuse Prevention and Consumer Act of 2005”. Bankruptcy law had been designed to rehabilitate debtors while protecting creditors. The…
Read MoreBREAK ‘EM UP Reason #2: Dodd-Frank’s Resolution Authority is Too Little Too Late
After passing Dodd-Frank, Congressional leaders claimed both “no more bailouts” and that Dodd-Frank’s “resolution authority” was a primary tool in solving “too big to fail”. These two claims are polar opposites. The former states there will be no further government bailouts of big banks, and the latter involves strengthening the government’s ability to do just…
Read MoreBREAK ‘EM UP Reason #1: Dodd-Frank Suffocates Both Commercial and Investment Banking
Congress may have removed Glass-Steagall barriers for all engaged in banking, but it sure didn’t create an even playing field. In fact, legislation in 1999 and 2008 suffocated two key financial sectors: investment banking and commercial banking. Comparing two giants from each sector — JPMorgan Chase and Goldman Sachs — shows how. Humans set the…
Read MoreAre You a Bank Analyst or Do You Know One?
Are you a bank analyst, or do you know one? I have created a link, below, to a model I built in 2011 after the passage of Dodd-Frank. Based on regulatory filings of the banks on the Fed’s Top Fifty Bank Holding Companies list, mentioned from time to time in my blog posts. I was…
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