Thursday, July 16, 2009

3-D Green Eyeshades

This brief post by Salmon reminds me that TBTF is here to stay, despite numerous calls to break the big banks up. Given that, what should we do? The so-called "tax" in the linked article would be a partial fix, but I don't think its enough. I would like to see a multi-dimensional insurance fee (or tax if you prefer) based on risk, size, and leverage. Some qualitative measures could be thrown in as well - stability of funding (deposits vs. brokered deposits vs. credit markets vs. whatever), strength of internal risk analysis, corporate structure, over-concentration or over-diversification, and more I haven't thought of. The idea of making the fees counter-cyclical should be implemented as well.

Of course, such a wonderfully precise system is about as likely as breaking up the big banks - both are blocked by the fact that the banks "own" the Senate (per Dick Durbin). But I can still dream, eh?

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