Friday, April 1, 2016

This Week in Bank Failures

If a new U.S. government policy required breakup of the giant banks, could that process be completed so quietly that no one would notice? It would seem so after looking at the experience of GE Capital. With incremental changes over a period of two years, GE Capital has gone from dominating some segments of the banking sector to being a minor player. In total it has reduced its assets by half. From the GE press release:

Today, GE filed its request to the Financial Stability Oversight Council (FSOC) for rescission of GE Capital’s designation as a nonbank Systemically Important Financial Institution (SIFI).

The filing demonstrates that GE Capital has substantially reduced its risk profile and is significantly less interconnected to the financial system, and therefore does not pose any conceivable threat to U.S. financial stability.

I’m sure there will be some debate about whether GE Capital has reduced its footprint enough to be taken off the “systemically important” list, but it has at least done most of the transformation that would be required, reducing its assets by $284 billion, and it has done it quietly enough to stay below the radar most of the time. No one will argue that GE Capital has special management skills that Wall Street lacks, so it stands to reason that if GE Capital can make this transition, all the giant Wall Street banks could do the same thing. There is no reason to worry about financial earthquakes occurring during a three- or four-year process of breaking up the banks.

Charged: Prosecutors in Brazil have charged executives at Banco Safra, the country’s tenth largest bank, and its holding company with a plan to bribe a tax appeals court. The charges are based on recorded phone calls among executives. More than 100 companies are being investigated for similar offenses.

Cuts: Credit Suisse is cutting another 2,000 jobs after losing more money than it expected on its distressed asset portfolios.