Bis: It's The Implicit Taxpayer Guarantee That Drives Banks To Get Bigger

[interestrateripoff]

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7914890/BIS-its-the-implicit-taxpayer-guarantee-that-drives-banks-to-get-bigger.html

The Bank for International Settlements claims in Long-term Issues in International Banking: "There is scant evidence of scale economies in international banking... The data do not indicate that large banks have successfully exploited economies via international expansion. Likewise, there is little evidence international expansion could have contributed to economies across different business lines."

The report cites a series of studies that claim economies of scale only apply for banks with assets of up to $25bn – a fraction of the trillion dollar balance sheets of the global lenders. At larger levels "diseconomoies set in" as banks become too unwieldy to manage.

The report argues that "incentives might have been distorted". "Certain banks may have expanded, either domestically or internationally, with the aim of attaining a too-big-to-fail status... This allows the bank to finance its business at lower cost than smaller competitors, which is beneficial to individual banks but impairs systemic stability."

BIS's observations come at a time when the banks are under scrutiny, with a Government commission looking into whether they should be broken up.

Despite the "moral hazard" international banks pose, BIS said they have "had a favourable impact on economic growth and efficiency".

So the banks are inefficient over a certain size yet help economic growth and efficiency!!!

How the hell can it be beneficial if they impair overall systemic stability.

The banks aren't too big to fail, the problem is if they do fail the entire system fails.

[interestrateripoff]

http://www.bis.org/publ/cgfs41.htm

Long-term issues in international banking

CGFS Publications No 41

July 2010

Abstract

International banking has been an important driver of financial globalisation and integration, thus contributing to welfare gains over time and across countries. During the recent crisis, however, the plight of many internationally active banks epitomised the fragility of the financial system. This underscored the importance of a proper understanding of the drivers and effects of cross-border intermediation.

This report - prepared by a Study Group chaired by Hans-Helmut Kotz, formerly of the German Bundesbank - documents general trends in the historical evolution of international banking, discusses various drivers of this evolution and examines the impact of international banking on financial stability and the macroeconomy. It also analyses possible future developments in cross-border intermediation, paying particular attention to the interplay between market- and bank-based activities.

Full text

[Traktion]

It's a bit late now, BIS!

It's blindingly, bloody obvious that the state backing of the banking sector is one of the major problems with our financial system.

Still, at least it's being reported on. Will it change anything? I doubt it and we'll mince towards the next banking crisis in good time.

P.S. It's not just the implicit guarantees - there is an explicit £50k per account one too.

Edited July 29, 2010 by Traktion