The IMF have released a report into large banks over the global financial crisis in its ‘Global Financial Stability report’. They say large European banks benefited from as much as $300bn in implicit public subsidies four years after the GFC because of investors expectations that they would not be allowed to fail. Large banks in the US had a $70bn advantage.
The IMF commented that;
- Government protection of large banks could create an uneven playing field as well as excessive risk taking and large costs for the public sector
- The expected probability that large banks will be bailed out remains high in all regions
- Countries emerged from the crisis with an even bigger problem
- Many banks were even larger than before and so were the implicit government guarantees
- Subsidies were around $110bn for both UK and Japanese banks
Too big too fail is one of the big things on the governments list of changes to make and while America is seemingly going gung ho to eradicate the problem, in Europe they are more worried about getting the backstops in place before tackling the source of the problem. It’s probably only the Germans who have actively been working on getting their banks to focus on their core business and splitting non core business off into separate entities.
