Beware of bank consolidation
Beware of bank consolidation
Every day there are fewer banks in the world. For those of us who have heard horror stories about those who, in order to solve problems with fraudulent withdrawals from their cards, must talk on the phone with anonymous voices and try to sound innocent, thinking about the possibility that one day we will only have one bank left, reminds us of Kafka .
But, apart from experiences worthy of a Stephen King, banking consolidation, an evolution that has been sold to us as a marvel, may contain other risks not sufficiently commented on – or happily ignored. Among these the following:
Less risk diversification. Whatever the authorities do to guarantee the diversification of banks, there is no doubt that fewer banks mean fewer baskets in which to put the eggs. When I read that during the first four years of the 1930s in the United States a total of 9,000 banks failed – I wonder what would have happened to that country if there had been just one bank.
Regulatory risk. Before, there were many countries and many ways of regulating banking. Today, when rules of global application are arrogantly dictated in Basel, the effects of any mistake can be explosive.
Excessive similarity. Encouraging banks to adopt common rules and regulations is ignoring the differences between economies, which is why some countries will end up with banking systems that are poorly adapted to their needs. Certainly, regulations whose main objective appears to be to safeguard capital come into conflict with other functions of banking, such as promoting economic growth and democratizing access to capital.
Less diversity of criteria. The smaller the number of participants, the lower the diversity of opinions and, with this, the greater the risk of misconceptions prevailing. Anyone who doubts this should read the one-dimensional analyzes published by the risk rating agencies.
Violent reaction. The development of decision-making processes has benefits but also risks. Thus we see that the speed of information itself, which promotes a rapid and immediate response, can aggravate the problems. Before, between those who took the problem home to study it and those who found out about it late, the market was provided with a buffer, which often saved it from untimely and poorly thought-out decisions.
Unclear benefits. To date we have not seen a foreign bank grant, for example, mortgage loans with globalized term terms and interests. In this sense, the benefits of a global bank are not clear, when it operates replacing local banking.
Cost of global aid. When banking in Venezuela had its last crisis, among other reasons due to buying banks at excessive prices, it was sad but logical that the cost was paid by our country. Today, with globalized banks, which are not immune to committing scams, as well as buying other banks at whatever price, who will pay the bill?
Nowadays, when the world calls for bank mergers or consolidations, I wonder if, on the contrary, the creation of special reserves based on size should not be imposed on banks. The larger the bank, the worse the fall and the greater the need to avoid it.
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