I have some difficulty in seeing how Henry Kaufman, writing in the Wall Street Journal, gets from his premise to his conclusion. The title of the op-ed is “Big Banks Are Not the Future”. Here’s his opening:
The halcyon days of large financial conglomerates are over.
This assertion may seem surprising in light of the growing power—and profitability—of the leading financial institutions in recent years. The trend toward oligopoly, already in full swing during the 1980s and ’90s, only accelerated during the financial crisis of 2008, as faltering firms were absorbed by a handful of burgeoning survivors.
Coming out of the crisis, those at the top seemed unassailable.
Today, a mere 10 highly diversified financial institutions are responsible for 75% of total financial assets under management. Not only are they too big to fail, if the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act works as intended, they are supposed to become more stable going forward.
Many observers therefore assume that these behemoths will dominate into the foreseeable future.
Or will they? The same crisis that shrank the number of leading players also exposed many of their frailties.
Yes, big banks are lousy, slow, and maladaptive. Over the period of the last half century at least when banks fail they’re absorbed by bigger banks. What’s the mechanism for divvying up a big bank into smaller banks? Youth wants to know.
