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| Economy |
| BIS: it's the implicit taxpayer guarantee that drives banks to get bigger |
| 2010-07-30 |
| The Bank for International Settlements claims in Long-term Issues in International Banking: "There is scant evidence of scale economies in international banking... The data do not indicate that large banks have successfully exploited economies via international expansion. Likewise, there is little evidence international expansion could have contributed to economies across different business lines." The report cites a series of studies that claim economies of scale only apply for banks with assets of up to $25bn – a fraction of the trillion dollar balance sheets of the global lenders. At larger levels "diseconomoies set in" as banks become too unwieldy to manage. The report argues that "incentives might have been distorted". "Certain banks may have expanded, either domestically or internationally, with the aim of attaining a too-big-to-fail status... This allows the bank to finance its business at lower cost than smaller competitors, which is beneficial to individual banks but impairs systemic stability." BIS's observations come at a time when the banks are under scrutiny, with a Government commission looking into whether they should be broken up. Despite the "moral hazard" international banks pose, BIS said they have "had a favourable impact on economic growth and efficiency". |
| Posted by:tipper |