• 59°

Commentary – TBTF – Some banks Too Botched To Fail?

By Peter Copeland
Scripps Howard News Service
If you’ve ever raised a risk-taking teenager, you know that the promise of swift and certain consequences is about the only tool you have to prevent misbehavior.
There are two kinds of consequences: those that occur naturally, such as wrecking the car when driving too fast, and those that are imposed, such as being grounded for a month.
So it is with regulating banks and financial institutions. There are the natural consequences of bad behavior: collapse, and loss of pay, employment and prestige. And there are the consequences imposed by the government, such as liquidation, fines or even jail.
In good times, Wall Street says it wants to live or die by the market, not regulations. Democrats in Congress are looking at tighter controls or even splitting up the biggest institutions so they don’t combine commercial banking and investment banking.
But when people talk about an institution being “too big to fail,” then you are changing the rules for everybody. The big banks are immunized from the consequences of their actions, no matter how risky, and the smaller banks are penalized with higher costs of doing business just because they could fail, even through no fault of their own.
In the current crisis, some firms were allowed to fail, while others were protected because of the fear their collapse would bring down the global financial system. They were propped up with cash, cheap credit and most importantly, the ultimate government guarantee of TBTF: “Too Big To Fail.”
Ironically, the financial companies that were not allowed to fail are now bigger than before the crisis, and therefore even more protected by Washington.
We are unlikely to go back to the old regulations imposed after the stock market crash that occurred 80 years ago this week. But look for the Obama administration and Democrats in Congress to try to make failure possible, without wrecking the system.

Comments

Comments closed.

Education

RSS budgeting for tens of millions in federal COVID-19 relief funding

East Spencer

‘Back in full swing’ for the spring: East Spencer community gathers for food, fun and fellowship at Spring Fest

Local

Rowan native Lingle among those honored with NC Military Veterans Hall of Fame induction

Business

Former pro baseball player, Tar Heel standout Russ Adams finds new career with Trident Insured

Education

Profoundly gifted: Salisbury boy finishing high school, associates degree at 12

Local

Cheerwine Festival will stick to Main Street, stay away from new park in September

Lifestyle

Celebrating Rowan County’s early cabinetmakers

Education

Service Above Self announces youth challenge winners

Business

Economic Development Commission creates search tool for people seeking Rowan County jobs

Columns

Amy-Lynn Albertson: Arts and Ag Farm Tour set for June 5

High School

High school baseball: Mustangs top Falcons on strength of hurlers

Business

Biz Roundup: Application process now open for Rowan Chamber’s 29th Leadership Rowan class

Sports

Keith Mitchell leads McIlroy, Woodland by 2 at Quail Hollow

Nation/World

States scale back vaccine orders as interest in shots wanes

Nation/World

Major US pipeline halts operations after ransomware attack

News

NC budget dance slowed as GOP leaders differ on bottom line

News

Judge limits footage that family can see of deputy shooting

Coronavirus

People receiving first dose of COVID-19 vaccine grows by less than 1%

Education

Rowan-Salisbury Schools brings Skills Rowan competition back to its roots

Business

Weak jobs report spurs questions about big fed spending

News

Judge limits footage that family can see of deputy shooting in Elizabeth City

Sports

Woodland, two others share lead; Mickelson plays much worse but will still be around for weekend at Quail Hollow

Business

Former NHL player to open mobster themed bar in Raleigh

Nation/World

California population declines for first time