Inside Financial Services


Print Friendly, PDF & Email

Douglas Elliott kind of likes the idea of bigness in banks:

[T]here are real economic advantages to having banks that can provide our businesses with a wide range of services, in many different countries, with large enough volumes to minimize costs. There are also many benefits to combining: the direct provision of credit via bank loans; the indirect provision of credit through management of securities offerings in financial markets; market-making activities to keep financial markets liquid; and the offering of risk management tools, including derivatives. Forcing banks to choose which set of services to provide, or to operate at an inefficient scale, would push up the cost of credit and reduce its availability. Our economy is already struggling, in part due to poor credit conditions. Ensuring that burden lasts even longer is not desirable. [Emph. added]

He might also have put in a good word for the virtues of diversification. The credit crackup happened, recall, because too many institutions owned way too much of a single asset: subprime residential mortgages. In retrospect, a little less subprime and a little more proprietary trading, market-making, and securities origination wouldn’t have been a bad thing. . . .