BREAK ‘EM UP Reason #10: Only the Biggest Are Both Investment and Commercial Banks

By Emily Eisenlohr | June 12, 2017

Only the largest banks engage in both commercial and investment banking. Each business has its unique attributes and therefore regulatory challenges. Dodd-Frank categorizes banks with balance sheet assets of $50 billion and larger as systemic. But when one looks at the bank holding companies (BHCs) with $50 billion or more in assets and also looks at…

BREAK ‘EM UP Reason #9: Only TBTF Banks Sold Securitized Residential Mortgages

By Emily Eisenlohr | June 12, 2017

Not all large banks designated as “systemic” by Dodd-Frank expose taxpayers to investment banking’s trading risks. Only the largest are the ones packaging and trading derivatives and were “securitizing” and selling residential mortgage-backed securities. Securities trading, historically of bonds and equities, has always been an investment banking strength. However, financial engineering created new, more opaque…

BREAK ‘EM UP Reason #8: Credit Default Swaps Are Insurance Masquerading as Derivatives

By Emily Eisenlohr | June 12, 2017

No product that was financially-engineered during the growth of the Great Bubble is as destructive as credit default swaps (CDSs). They are more insurance than derivatives. Only the largest banks trade them. Only a rather small percentage are cleared on central counterparty clearing platforms, despite Dodd-Frank. The International Monetary Fund (IMF) and many in the…

BREAK ‘EM UP Reason #7: Regulators Cannot “Ring-Fence” Risk Out of TBTF Banks

By Emily Eisenlohr | June 12, 2017

Ring-fencing of risks may be a useful tool for financial sector regulators, but it isn’t a solution to systemic risk. In a systemic event, one cannot fence in trust and fence out fear.

BREAK ‘EM UP Reason #6: Derivatives Trading Siphons Capital Out of the Banking Sector

By Emily Eisenlohr | June 12, 2017

  Derivatives credit management practices siphon capital out of the commercial banking deposit system, capital that could otherwise be used to support lending. Small and medium-sized businesses face enough headwinds from globalization and technology. They don’t need this assault on their ability to borrow. Derivative contracts can serve a useful purpose. They just shouldn’t be…


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