Jul 16, 2014

Murray tackles ‘too big to fail’, but are we increasing the risk of failure?

The Murray financial services inquiry recognises we have an issue with "too big to fail" banks -- while noting we are increasing the chances of failure through our love affair with property. Bernard Keane and Glenn Dyer write.

When a financial services inquiry was first proposed by Joe Hockey — borrowing from an eclectic group of economists — in 2010, the banking environment was somewhat different. The banking cartel had been lifting interest rates above the RBA’s rises for a year, although few people understood that that merely meant the RBA would be slower to lift official rates and the eventual difference would be minimal. There was considerable focus on the dearth of competition in the banking system in the wake of the financial crisis, which had allowed the big banks to consume some of their nearest smaller rivals.

And there was a lot of talk of “too big to fail” — the problem on institutions that are so large, everyone knows a government won’t let them collapse during a financial crisis, giving it an implicit guarantee that enables it to access funding at a lower cost than smaller competitors and encourages riskier behaviour. In a speech back then, Hockey correctly observed:

Free Trial

Proudly annoying those in power since 2000.

Sign up for a FREE 21-day trial to keep reading and get the best of Crikey straight to your inbox

By starting a free trial, you agree to accept Crikey’s terms and conditions


Leave a comment

6 thoughts on “Murray tackles ‘too big to fail’, but are we increasing the risk of failure?

  1. klewso

    “Too big to fail”? What happens when they do – society-wise? “GFC”?
    Why can’t they be overseen/regulated not to fail?

  2. dazza

    Taxpayers are paying billions of dollars for a swindle pulled off by the world’s biggest banks, using a form of derivative called interest-rate swaps.
    This from an seiu report:

    Derivatives . . . have turned into a windfall for banks and a nightmare for taxpayers. . . . While banks are still collecting fixed rates of 3 to 6 percent, they are now regularly paying public entities as little as a tenth of one percent on the outstanding bonds, with rates expected to remain low in the future. Over the life of the deals, banks are now projected to collect billions more than they pay state and local governments – an outcome which amounts to a second bailout for banks, this one paid directly out of state and local budgets.

  3. dazza

    Governor of the Bank of England claims jailing banksters won’t stop them from committing crimes in the future??? wtf

  4. Dogs breakfast

    Joe was a big talker while in opposition, and has shown himself to be a puppet in government.

    Swan should have taken him up on his rhetoric in the middle of the GFC and quarantined the retail banking from the rest of the risky banking business, and then only guaranteed the nuts and bolts banking.

    I would have liked to see Hockey either back Swan on this, or squirm away (the more likely outcome)

  5. Liamj

    No wonder bankers are hated more than politicians, they’ve earned it.

  6. klewso

    How could you love overpaid leeches.

Share this article with a friend

Just fill out the fields below and we'll send your friend a link to this article along with a message from you.

Your details

Your friend's details