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Banks have ceded that territory to specialist lenders/investors. Which there's a business case for. It makes no sense to have thousands of lending officers with various sector expertises under the same roof. It makes more sense to have a dedicated group funding a specific area. So, the business model of banking maybe perhaps couldn't stay the same. It had to change as things got more complex. Understood. What we didn't need, however, was allowing banks to hold on to bailout protection when the origional rationale was no longer there. So the regulatory failure wasn't the presence of too many regulations. It was the failure to take away the bailout when the fundamental rationale for it disappeared.
As for massive banks, I think Canada is instructive. Five big banks, and they made the same arguments as all the rest in the 90s -- let us merge so we can compete on a global footing and preserve growth prospects. They were not allowed to do this. They are heavily regulated. They are also amongst the world's healthiest banks, and were sitting on a bunch of capital when the financial crisis hit and came south of the border to pick up assets on the cheap, which is how TD has a massive presence along the East Coast now. Classic tortoise/hare story, but behind it is a big, heavy regulatory presence that, rather than trying to understand some new and weird shit, just ruled it out wholesale. In the US one reason why regulation doesn't work because the regulators can't afford to hire people smart enough to know what the regulated are doing. In Canada, regulation works because the regulator, on a large scale and generally speaking, doesn't need to be that smart in order to protect the public and have a stable financial system. Arguably the American approach, focused on innovation, is much more fragile and fraught for everyone other than the bankers themselves.
If I'm tasked with finding the right balance between individual economic freedom and providing a stable, level playing field for all economic actors, one thing I'd want is to see most innovation and entrepreneurialism taking place outside the financial sector. Not inside it.
As for massive banks, I think Canada is instructive. Five big banks, and they made the same arguments as all the rest in the 90s -- let us merge so we can compete on a global footing and preserve growth prospects. They were not allowed to do this. They are heavily regulated. They are also amongst the world's healthiest banks, and were sitting on a bunch of capital when the financial crisis hit and came south of the border to pick up assets on the cheap, which is how TD has a massive presence along the East Coast now. Classic tortoise/hare story, but behind it is a big, heavy regulatory presence that, rather than trying to understand some new and weird shit, just ruled it out wholesale. In the US one reason why regulation doesn't work because the regulators can't afford to hire people smart enough to know what the regulated are doing. In Canada, regulation works because the regulator, on a large scale and generally speaking, doesn't need to be that smart in order to protect the public and have a stable financial system. Arguably the American approach, focused on innovation, is much more fragile and fraught for everyone other than the bankers themselves.
If I'm tasked with finding the right balance between individual economic freedom and providing a stable, level playing field for all economic actors, one thing I'd want is to see most innovation and entrepreneurialism taking place outside the financial sector. Not inside it.
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