Banking Industry: a recipe for disaster - too big to fail policy for banks still in place in US and EU

Unfortunately the Government systems that allowed banks to take on greater risks while giving them public assistance via Government and other taxpayer-backed programs has in reality not been altered and is still growing. .

One could ask the question, why don't Governments force the banking system to return to the model used after the great depression, which presents little or no risks to the tax payer?

Commercial banks, because they receive special funding privileges from their governments, should be told they are limited to a basic scope of activities: taking deposits, making loans and processing payments. Exotic and complex investment and debt offerings should be separately handled by independent investment banks that take risks with their own capital, not money borrowed from the government and guarantee by the tax payer.

What Governments have done today is to provide commercial banks with special Government protection, thereby increasing their risk profile and accentuating the overall fragility of the system.

Even though recent watered down "regulations" now require banks to hold more capital, governments are still required to help when a big bank begins to collapse. This means that the big banks basically do not worry at all when they take huge risks, because they know they will continue to be rescued by their government, instead of being allowed to fail.

It is a recipe for disaster, and worse of all, it will happen if drastic measures are not taken to put the financial and banking industry in a "straight jacket"" and to allow them to fail when they mess up.

EU-Digest

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