BIG BANKS, and Me

Last several days one of the biggest business stories in the U.S. has been OBAMA's efforts to control and regulate banks - somewhat of a punishment for their part in the sub prime and liquidity debacle we just went through .

The recurring theme has been ' too big to fail ' - I have pasted part of a recent article in BNET.COM that provides some backdrop .

As Canadians we know our banking system :

1. Is Different
2. Had little or no role in the worldwide debacle

It is very difficult for us as Canadians as imagining a bank failure in our BIG 6 banks .

I guess that's one of the benefits of conservatism , although all my business customers feel they are paying a bit of a price for conservatism .

Stan

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President Obama left out a critical element yesterday in announcing his plan to limit the size of banks — how you do it. A number of ideas are kicking around, but following are the most likely methods.

Asset Cap. This would parallel the national deposit cap, which prohibits banks from controlling more than 10 percent of domestic insured deposits. But under this approach the cap would limit a financial company’s total assets, which include loans, reserves, investment securities and real estate, to a set percentage of the banking industry’s total assets.

The U.S. banking sector has roughly $13 trillion in assets. That means a 10 percent cap would limit banks to no more than $1.3 trillion in size. That would affect Bank of America (BAC), Citigroup (C) and JPMorgan Chase (JPM). A five percent cap would also reel in Goldman Sachs (GS), Morgan Stanley (MS) and Wells Fargo (WFC).

Liability Cap. A bank’s liabilities mostly comprises its checking, savings, CD and other core deposits. Under this method, a financial firm’s maximum total liabilities would be set as a percentage of U.S. GDP, which is roughly $14 trillion. So if the cap were fixed at 10 percent, a banking company’s liabilities couldn’t exceed $1.4 trillion. That would affect Bank of America, Citigroup and JPMorgan.