Banks in the developed world have sucked up more than $1,000bn since the crisis broke; following Friday’s release of stress test results more will follow. How cheering, then, to hear a lone voice pipe up “Enough”.
Taiwan’s banking regulator, mulling curbs on capital raising by local banks and insurers, is bang on the money. Handing more cash to those that bet the farm, and lost it, is a funny sort of way to recalibrate risk/reward dynamics. Japan, which wrote the book on banking crises, has demonstrated as much by blowing billions of dollars on the over-saturated sector. Net result: pitifully few banks died; instead, bad loans rose 40 per cent between 1999 and 2002 to nearly $500bn (that is just the disclosed number) and zombie borrowers proliferated. According to some academics, maybe one-third of Japanese companies were on bank life support in 2002, tying up 15 per cent of assets. So much for Schumpeterian creative destruction: banks that had no right to exist were keeping alive borrowers with even less right.
True, the pivotal role banks occupy in the economy makes elimination tough; the collapse of Lehman Brothers merely highlighted the pitfalls. But the developed world is, by and large, over-banked. How many even blinked when 120 small US banks were shuttered in 2009? Germany has more banks than bakeries. Spain, another country with a penchant for real estate lending, has one branch for every 1,000 Spaniards, five times as many as the UK. And does Europe really need so many banks whose assets dwarf the domestic economy? (UBS’s assets, for example, are nearly three times the size of Switzerland). Japan, with too many lenders and too few borrowers, is still stalked by the banks that imploded during its crisis. Notwithstanding several cash raisings and changes of ownership, the government’s chances of cashing out of Shinsei Bank are as slim as ever.
High time to listen to the Taiwanese.
E-mail the Lex team confidentially
Get alerts on Banks when a new story is published