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Too Big to Fail, Too Small to Save… the latest

In an RMA Regulatory update, W. Bernard Mason reported on the U.S. Congressional Joint Economic Committee hearing
held last week that explored the government’s actions in dealing with the current financial crisis.

This hearing, held on April 21, 2009, looked at the concept of “too big to
fail” and the use of public funds to bolster the operations of the nation’s
“systemically important” financial firms. 

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If you are trying to follow the bouncing ball of public and expert opinion, read the full article here.

Congresswoman
Carolyn Maloney (D-NY), current committee chair, asked the
witnesses whether they believe the federal government is applying a double standard
in attempting to resolve weaknesses in individual financial firms.

  • The economists agreed that smaller banks continue to be closed and resolved in the traditional
    manner; however, they viewed the government as unwilling to come to grips with
    the problems presented by larger firms.
  • Economist Joseph Stiglitz stated his opinion that the
    disadvantages outweigh the advantages in this approach. In his view, smaller community
    banks provide the basic services to our economy, but the government is devoting
    most of the resources to the bigger banks that do not add value to the economy.
  • Economist Simon Johnson said the real risk-takers and entrepreneurs in this country are enraged
    by the incompetence and hubris of big bank management in the U.S.

What do you think?

Should big banks get breaks that community banks and credit unions do not? I keep hearing community bankers and credit unions talk about how they did not get into the sub-prime offerings. While true, that does not mean they are not challenged right now.

In fact, in the Puget Sound Business Journal this week, the lead banking story was about credit union challenges. Like the banks, they are being required to pay assessments to rebuild the regulatory insurance account.

Weigh in

What should be done about the banks that are ‘too big to fail’?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.