Banks: Too Big to Do Anything Right?

      Well, your suspicions turned out to be correct: American banks are too big to manage. As we have found out most recently, big banks, despite being run by experienced banking professionals, can succumb to financial pitfalls as simple as a change in interest rates. What? Didn't we see and hear that the FED was raising interest rates to curb inflation? Didn't the bankers get the same information when we did? Hmmmm. What happened at Silicon Valley Bank, safe harbor for the techno wizards of Silicon Valley? All the funds stashed in this well-established institution were in the neighborhood at a bank that dealt locally for locals/startups/ billionaires. Then the bank started having issues with assets and liabilities(deposits). Depositors started pulling funds out. What started as a trickle, began to flood out. federal auditors were in the bank, and, they proclaimed all is well, until it wasn't.

      Then, Signature Bank popped up as a problem. Then, it, too, was taken over. And then, First Republic Bank of San Francisco was identified as under water. First Republic was pushed into the waiting arms of another-larger institution and depositors were assured by Janet Yellen, Secretary of the Treasury, that ALL deposits would be insured against loss. Not so much for stockholders in any of the above. So, the economy was saved from destruction again, and Americans could sleep comfortably in bed at night without worrying about their paychecks bouncing down the lane.

      In the last week, the acting Comptroller of the Currency, Mr. Michael Hsu, made statements to the effect that banks are too big to function under the control of existing management structure(s). Too many variables exist in the financial realm and cannot be adequately controlled in a company that controls hundreds of billions of dollars(or more). No single individual, no board of directors, no staff managers, no senior employees, no structure of controls works at a big bank. These banks have grown beyond their capacity to function as per design. According to the Comptroller, banks have to be downsized. They have to be reduced into a business that can function as a key feature of the national economy. Business and individuals can no longer count on these megabanks to operate effectively, legally, and without adequate oversight. This comes from the man and the office charged with oversight. 

       Unlike in 2008, this year the problem was the interest rate hikes by the Federal Reserve Bank and its leader, Jerome Powell. He stated that inflation had exceeded expectations and had to be controlled with rate hikes, which was broadcast widely. Were banks asleep? Apparently, and they did little to correct the situation, despite having auditors on the seen, in house.

     When will the banks be reined in? Another good question. Watch the bankers with their armies of lobbyists descend on Congress to promote the status quo and to preserve the fat pay packages of the senior staff at these Wall Street institutions, among others. Don't hold your breath waiting for change, my friends.