ARE THE BIGGEST BANKS A CURSE? The notion of national champions has been popular in the last couple decades. Countries seek to have one of the leading oil companies, one of the leading auto companies, one of the leading airlines…. It may seem an advantage for one of the country’s banks to be one of the largest international banks. But if there is an implicit guarantee that a country will rescue a bank because the bank is “too big to fail”, then is it not a trap for the taxpayers of that country? Martin Wolf commented in the Financial Times (September 16) about the “rogue” trader who lost $2.3 billion for UBS, that there could not be “a better illustration of the unregulatable risks to which investment banks are exposed….No sane country can allow taxpayers to stand behind such risks.”
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I just saw in the Yahoo News today (Oct. 13, 2011) that a new protest movement is in the works. People are being told to move all money they have in large banks into small,local banks or credit unions. I certainly understand the message behind the advice. I just wonder if it’s good advice for the economy. Maybe it is? If the small banks and credit unions loan this money out locally to small businesses, that would be a big help towards the creation of new jobs, a real blow at local unemployment. On the other hand, I don’t know how much capital would be stripped away from the big banks that are funding the functions of large corporations. If they suddenly can’t get their hands on the money they need to keep going, what will THAT do to the economy? I guess I’m asking: is there a super economy, or do all local economies add up to the national economy? Is this a clear question, and relevant?
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