PUBLIC SERVICE: «Too big to fail» - another financial volcanic eruption in the making

«The banking sector has tended to become even more concentrated. Furthermore, the total assets of a number of big banks have continued to soar: institutions with assets of $2tn are commonplace. Such banks remain highly interconnected, though the extent of this might have diminished recently.

Reforms introduced after the crisis aimed at reducing the likelihood of state support seem to have increased the perceived riskiness of SIBs (systemically important banks), just as the imposition of lower leverage ratios reduced it. Both outcomes were desirable. Yet the implied subsidies remain large – as high as $312bn in the eurozone, on one approach. In terms of the funding cost advantage to SIBs the subsidies are at least 15 basis points in the US; 25-60 basis points in Japan; 20-60 basis points in the UK; and 60-90 basis points in the eurozone.»

‘Too big to fail’ is too big to ignore, Martin Wolf, Financial Times

«The implicit subsidies take the form of the benefits that accrue to banks and their investors because of the bailout assumption. If bankers know the government is likely to bail them out, they may take more risk. In addition, investors are willing to lend to such banks at lower cost because they see the likelihood of a bailout as a form of insurance. This creates an effective subsidy for the biggest banks that distorts competition and makes the financial system overall more risky.

According to IMF estimates, the largest, globally active banks alone benefit from implicit subsidies worth $15bn-$70bn in the US, $25bn-$110bn in Japan, $20bn-$110bn in the UK and $90bn-$300bn in the eurozone, depending on the method used to calculate them.»

Problem of banks seen as ‘too big to fail’ still unsolved, IMF warns, Robin Harding and Ralph Atkins, Financial Times

Será isto inerente ao sistema financeiro? Talvez sim ou talvez não. É certamente inerente à intervenção militante dos governos, resgatando indiscriminadamente bancos, anestesiando a percepção do risco com garantias elevadas de depósitos (até USD 250 mil nos EU e Eur 100 mil na maioria dos estados europeus) e injectando artificialmente liquidez com a impressora do Quantitative Easing, terapêuticas para debelar uma crise que criam as condições para gerar a próxima.