Commodity Trade Mantra

Posts Tagged ‘Too Big to Fail’

Fed Finds TBTF Banks Increase Systemic Risk, Have A Funding Advantage

TBTF Banks can borrow more cheaply in bond markets than smaller rivals (an average 0.31% less on A-rated debt than their smaller peers), in part because of investor perceptions that they are too big to fail. This insensitivity of financing costs to risk encourages too-big-to-fail banks to take on greater risk.

Why Banks Are Doomed: Technology and Risk

It’s not just that banks are no longer needed–they pose a needless and potentially catastrophic risk to the nation. To understand why, we need to understand the key characteristics of risk. The entire banking sector is based on two illusions.

After the crash of September 2008, the term “too big to fail” became familiar when hundreds of billions of dollars were set aside to bail out BANKS -The nations largest financial institutions. And today, many of the mega-banks that caused the panic of 2008 have now become even larger.

Why Did China Order Its Smaller Banks To Load Up On Cash?

Smaller banks are the weakest link of China’s financial system because their lack of a stable deposit base would force them to seek more expensive funding and offer more risky loans. They will be hardest hit when borrowing costs are elevated and the economy slows.

This Could Finally End The TBTF - "Too Big to Fail"

While I’m sure the report won’t draw conclusions or offer solutions, let’s hope it gives the world the ammunition it needs to shoot down the TBTF banks to size, (to preferably the mid-tier regional bank size), so our free markets can be free at last.

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