Friday, November 11, 2016

This Week in Bank Failures

The Donald Trump election victory is good news and bad news for Wall Street. It is good news in the sense that Trump is a Wall Street insider and has signaled an intention to pepper his cabinet with Wall Street insiders. The Wall Street insiders will be well-positioned to engineer the next Wall Street bailout. It is bad news in the sense that Trump has a negative view of international commerce. All of the Wall Street banks are fundamentally international in character, which means they are, by their nature, at odds with the policies of the incoming administration. Will they be able to adapt to a new set of isolationist policies and new restrictions on what business they can conduct? Are they prepared for the extended recession and loan losses that could result from the price shocks and job losses of an isolationist trade policy? The new regime will, at minimum, be a culture shock on Wall Street. In the worst case, Wall Street could lose the better part of its business.

The fate of Deutsche Bank is a special question. The German banking giant has signaled an intention to keep its U.S. operations relatively intact, but will it be financially able to do so in the light of the new taxes and restrictions that are on the way?

Cyber attacks on banks are becoming more severe. Last weekend the U.K.’s Tesco Bank suffered £2.5 million in fake online transactions. Late in the week, two major Russian banks, Sberbank and Alfa Bank, were hit by unusually large DDoS attacks. Attackers typically use DDoS attacks against banks to disguise false transactions, but there were no apparent transaction losses in the Russian attacks.