Comments on: Sustainability in Financial Services – Does size matter?

By: Pratibha

Pratibha — Tue, 19 Jan 2010 11:48:05 +0000

Thanks Aamod for your views and comments. I am glad you like the article. I think the issue, irrespective of sector or socio-economic impact, remains one of finding the optimum size and the solutions invariably tend to mimic cyclical patterns – I agree theorizing is “Easier said than done”

By: Aamod

Aamod — Wed, 13 Jan 2010 11:51:36 +0000

There are examples where a firm has been forced to split, typically to keep the competition alive. Many mergers are routinely struck down by regulators for the same reason. Banking does not need to be any different. With 3 banks cornering 35% or more of the deposits in US, certainly they can decide the rules of the game – it will definitely not be power to the customer. They have already done many policy changes which do not help the customer – the interest rates and penalties on credit cards for example. Market share means power means high charges means big profits means juicy bonuses. I have read Jamie Dimon’s article. Well written, but it is time to call the bluff.
At the same time, how to control the risk and monopolistic practices is a question without an easy answer. Easy to say too big to fail, not so easy to say what is too big, as rightly pointed out here. Perhaps there should increasing disincentive – through taxes or whatever – as the size grows and the market will automatically find an optimum. Adjust the levers and the optimum will shift.
Easier said than done of course.
Good article, thought provoking.

By: Cynical Indian

Cynical Indian — Wed, 13 Jan 2010 05:54:57 +0000

Nice analysis and summary.
There is plenty to fight for on both sides. And as usual, banks will not let go easily. They have a long history of weaving an impressive tale of customer interest to defend anything that makes moolah for the executives, even if it risks the future of the bank itself. investment Banks have refined this skill to an art form. So the tradition of IB chiefs becoming treasury secretaries is bad. Obama knows so i hope the news that Dimon might succeed Gaithner is just a romor. coming back to the argument, although there is a case for controling the size of an individual institution – for both increasing competition and reducing risk – setting an arbitrary limit will not help. It needs to be less explicit but equally effective and done in a way that forces the banks to follow it in letter and spirit.

Nice blog, looking forward for more. You can never be too cycnical while analyzing the investment banks’ behavior. What we know in public domain is only a tip of the iceberg…