http://www.economist.com/businessfi…e=features_box1
I have never seen an article about the banking industry where you could draw so many conclusions and plenty of critiques.
HAVE FUN!!!
You are partly right, you have plenty to critique in the article. I disagree with all the conclusions except 1. That is to let markets sort out this stuff. Of course they really don’t mean “Free Markets” where banking entities exist at behest of the market place, I think they mean this insane cartelized system where banks fail as much as they want and the bill gets picked up by tax payers through deficits and currency holders through inflation.
The reason banks get so big is through leverage. For example, a bank with a 100 million in deposits can take 1 billion in loans yielding say 60million in revenue. A bank billion in deposits can create 10billion in loans yielding about 600 million in revenue. A bank with 10 billion in deposits can lend out 100billion in loans yielding about 6 billion in revenue. At the height of the mortgage boom, Fannie and Freddie were loaned at between 30 and 60 to 1. So for every billion they had in reserve they loaned between 30 and 60 billion.
The following things about banks do not matter:
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Size and/or market share.
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Amount of derivatives held or issued.
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Economic power.
The only thing that does matter is that can the bank survive the fickle desires of consumers. Those that do will survive while those that don’t will simply cease to exist.