The Zacks Analyst Blog Highlights:JPMorgan Chase, Bank of America, Goldman
Sachs Group, Citigroup and Deutsche Bank
CHICAGO, Jan. 28, 2013
CHICAGO, Jan. 28, 2013 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include JPMorgan Chase & Co. (NYSE:JPM),
Bank of America Corporation (NYSE:BAC), The Goldman Sachs Group, Inc.
(NYSE:GS), Citigroup, Inc. (NYSE:C) and Deutsche Bank AG (NYSE:DB).
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Here are highlights from Friday's Analyst Blog:
Should "Too Big to Fail" Banks Be Carved Up?
Richard Fisher has once again sounded a familiar clarion call: "Too big to
fail" cannot be a principle the US financial system continues to abide by.
Speaking at the National Press Club in Washington on Wednesday, the Federal
Reserve Bank of Dallas President said the Dodd-Frank legislation had done
little to alleviate several of the issues that confront the financial system.
He went on to add that if anything, the law had made things even worse.
The current scheme of things is such that in the absence of a bailout we would
be faced with the collapse of the financial system as we know it. He went on
to emphasize the need to split banking behemoths into smaller units.
Bank concentration has increased significantly over the years, particularly
from 1970 to 2010. But what is of particular interest is how sector
concentration has changed after the financial crisis. According to data from
the Federal Reserve Bank of Dallas, the leading 100 banks in the US had an 84%
market share. By the third quarter of 2012, concentration had increased
further. The top 82 banks now had an 88% market share. Given this situation,
if another banking crisis occurs, the impact would be clearly larger.
Further, Dallas Fed data also shows that Lehman Brothers, which had to face
bankruptcy following the crisis, was a small player compared to JPMorgan Chase
& Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), The Goldman Sachs
Group, Inc. (NYSE:GS), Citigroup, Inc. (NYSE:C), etc. This conclusion is based
on an analysis of non-deposit liabilities, subsidiaries and number of
countries of operation. In fact, Lehman didn't even figure in the top ten.
Fisher's call to split up the megabanks seems to have found support in the
actions of Germany's financial markets regulator. The regulator has asked
Deutsche Bank to undertake a simulation exercise which would examine a
scenario where it splits up its securities and retail business.
However, this proposal, named after Erkki Liikanen, Governor of the Bank of
Finland, would go on to raise costs for clients, says Deutsche Bank AG
(NYSE:DB) co-CEO Anshu Jain. Therefore, he says, it should only be implemented
if all banks worldwide have no choice but to comply with such regulations.
Speaking at a panel discussion in Koenigstein, near Frankfurt, Jain and
JPMorgan's CEO Jamie Dimon said banks and regulators should work on creating a
system where in the event of a crisis, large banks can close down without
damage to the public. These closures should also happen without the costs
associated with the large bailouts which occurred after 2008's financial
Dimon added that banks as large as JPMorgan can be shut down without harming
taxpayers. But such a process would require regulators across countries to
work together closely because of the global nature of these bank's operations.
He also said new capital and liquidity requirements collectively known as
Basel III will further strengthen the banking system.
Fisher wishes to address the situation by clearly defining where safety nets
for the banking system should end. He argues that only commercial banks would
have access to deposit insurance provided by the Federal Deposit Insurance
Corporation (FDIC) and discount window loans provided by the Federal Reserve.
This would in turn be reinforced by a new disclosure statement that declares
the unprotected status of participants not protected by the safety net. This
includes customers, creditors and other interested parties.
Jain and Dimon still argue against splitting up larger banks. Clearly, they
offer a wide basket of services which greatly benefit the economy. They also
continuously point to the greater costs this would entail to clients.
Splitting up a megabank, therefore, may not be the magic wand for the
financial system's problems. Strengthening the regulatory framework and
ensuring more effective implementation may be a more practicable solution.
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