Tuesday, January 12, 2010
I have long pointed out that the too big to fails make very little of their money off of traditional depository functions.
For example, last October, I argued:
Some very smart people say that the big banks aren't really focusing as much on the lending business as smaller banks.
Specifically since Glass-Steagall was repealed in 1999, the giant banks have made much of their money in trading assets, securities, derivatives and other speculative bets, the banks' own paper and securities, and in other money-making activities which have nothing to do with traditional depository functions.
Now that the economy has crashed, the big banks are making very few loans to consumers or small businesses because they still have trillions in bad derivatives gambling debts to pay off, and so they are only loaning to the biggest players and those who don't really need credit in the first place. See this and this.
So we don't really need these giant gamblers. We don't really need JP Morgan, Citi, Bank of America, Goldman Sachs or Morgan Stanley. What we need are dedicated lenders.
I just ran across an example for one of the TBTFs.
Specifically, Bank of America - the U.S. largest bank - has only $83 billion in deposit accounts (what they call "transaction accounts").
But B of A has between $1.3 and $1.5 trillion in total bulk assets and liabilities.
In other words, far less than a tenth of B of A's overall assets come from traditional banking functions.
Why do we need to save the too big to fails again?