- Crescenzi: Claims Level Suggests End to Job Losses
- Schork Oil Outlook: Gas Bulls Pinning Hopes on Mother Nature
- Busch: The Debt-Interest Rate Paradox
- Busch: Markets Smell a Country Rat
- Schork Oil Outlook: Mission Impossible For The Bears?
- Losey: Asset Allocation At Retirement
- Farrell: Obama Hectored, Ignored and Restricted?
- Don't Dwell on Investment Mistakes; Move on, Like Buffett
- Hirschhorn: Greed...or Fear
- Schork Oil Outlook: Some New Hope For Nat Gas Bulls
MOST SHARED
- Kuoni CEO Sees Recovery in Travel Sector
- Gold Retreats from Record High as Dollar Rebounds
- Dubai Struggles to Ease Debt Fears; Investors Rattled
- Chinese Overcapacity is Worsening, EU Chamber Warns
- Fannie Mae to Tighten Lending Standards: Report
- Wal-Mart Price Pressure Hurts China Workers: Report
- China Unveils Carbon Target Ahead of Copenhagen
- Hyundai-Kia Targets Rapid China Growth in 2010
- Great Britain, No Longer That Great: Investor
- 4 Thanksgiving Week Buys For Your Portfolio: Market Pros
- There's a 'Great Chance' For a Double-Dip Recession: Strategist
- Revenge of the Gangsta Nerds
- Will TCU See The "Flutie Effect?"
- Retail Earnings and Sales to Improve in Q4: Analyst
- Consumers Catching the Holiday Spirit
- It's Beginning To Look A Lot More Riskless
- Crescenzi: Claims Level Suggests End to Job Losses
- Hedge Funds Take Early Lead in Warren Buffett's 'Big Bet'
- Dubai Struggles to Ease Debt Fears; Investors Rattled
- Japanese Stocks Likely to Fall Broadly on Dubai Worries
- US Dollar Falls to 14-Year Low Against the Yen
- US Companies Already Moving on Curbing Emissions
- Fannie Mae to Tighten Lending Standards: Report
- Investing in Good Karma – and Making a Profit
- Retailers Should Believe in Christmas Miracles
- Bankruptcies Jump, Hitting Highest Level in Four Years
- Steepest Black Friday Discounts, Revealed
RSS FEED
CNBC Guest Blog
Text Size 
William Dunkelberg
Economic Strategist,
Boenning & Scattergood
 |
Proposals to reform the financial industry purport to address the “Too Big to Fail” issue, but do not address the underlying problem of “TOO BIG”. We are preoccupied with “growth”, somehow a company not experiencing top line growth is viewed as a poor performer, regardless of how profitable (per share) the company might be. “Bigger is Better” is the mantra of the market. Organic growth is usually not powerful enough to satisfy the market, so mergers and acquisitions abound.
This has certainly been the case in the banking industry. Banks routinely gobble up each other, even though there is really no evidence that there are any scale economies that will benefit customers or shareholders. Egos drive growth, there are so many examples of poor acquisitions driven by the CEO’s desire to have “the biggest” (but not the best) bank.
The latest and greatest proposed reform of the financial system seems to set incentives in the wrong direction. Banks officially identified as too large to fail will be more attractive for investors, they will borrow at lower costs (an unfair competitive advantage) and they will get larger, posing more risks to depositors and investors or, at the bottom line, taxpayers who will be obligated to make sure that they don’t fail as the government promised. The costs of “size and growth” have been made so clear and the subsidies provided to larger institutions (who can actually permanently borrow federal funds at 0%, for example, while small institutions could never do this) have been exposed – big bank investors and creditors are protected, small ones extinguished. Small bank earnings are being heavily taxed by FDIC to pay for the sins of those hot, fast growing institutions. This is wrong-headed.
Regulatory failure was perhaps as much a fault of the individuals involved as were deficiencies in the institutional structure. They had the powers to do much more than they did but had the wrong perspective and experience. Look at the previous occupations of so many of the regulators! The "mindset" of many of these regulators blinds them to many risks, they have big wheeling dealing backgrounds, much skill in using their asymmetric information to make money in a competitive market. They only think "Wall Street", ignore the 8000 smaller banks that serve America's consumers and small businesses on Main Street.
This is a weakness that needs to be overcome.
_________________
William Dunkelberg is an Economic Strategist, Boenning & Scattergood and Chief Economist, National Federation of Independent Business.
Data is a real-time snapshot *Data is delayed at least 15 minutes