Too big to fail banks

The good old days in banking? Maybe, maybe not!

The good old days in banking? Maybe, maybe not!

Are banks really too big to fail?  That depends on if they could be a systemic risk.  Absolute size should not be the criteria for determining too big.  The proper way to determine too big is to look at the size of the economy that the bank is working in, the equity in the bank, and the counter-party risk that the bank is exposed to and exposed from other financial institutions. 

The JP Morgan Case CEO, Jamie Dimon, has proposed that we need big banks to structure "big deals."  Well Mr. Dimon, you are right that big banks are needed to structure "big deals" but we really need to ask the question, "Is the system better off with big deals?"  I propose that big deals and big banks producing big deals makes our financial and economic system more fragile and prone to crises.  We need an economic and financial system that is more antifragile.  This antifragility can be accomplished through restructuring the banks, whereby we right size them relative to the criteria mentioned above.

Paul Cottrell, BSc, MBA