Big Banks To Grow Bigger Says Citi Chief
Banking reforms will not stop risk taking. As a matter of fact it will help the big banks get bigger and more confident to take risks. Citigroup Chairman Richard Parson in an interview with the Fortune Global Forum at Cape Town said the regulatory stipulations of the Dodd-Frank Finance Bill will not put "material impediments" in the bank's growth path.
Wall Street’s Big Six are instead celebrating that even the one-time, asset-based Bank levy of $19 Billion to be charged by FDIC over the next decade, would now be scrapped to ensure that the bill is passed in Congress. This would have been a paid ticket anyway to increased risk taking, as it had ensured that the much feared Financial Transaction Tax that could actually curb speculation, was thrown to the dustbin.
The originally considered Financial Transaction Tax, dropped after hectic lobbying by banks, would have curtailed the risk taking as well as created an audit trail for the $600 trillion derivatives market, which recorded a mammoth jump to $216 trillion notional value last quarter. Even a nominal 0.01% transaction tax would have curbed the volatility and tracked the inflow of hot money into the system, and exposed the parties dealing in excessive naked shorts of government bonds and currencies.
Besides Goldman Sachs and Morgan Stanley, who benefited from the asset-based tax due to their lower asset base, would have to forgo the high-speed round-trip trades at the London ICE Exchange, in case of a VAT type financial transaction tax, if it could be implemented globally.
The 2008 sub-prime crisis saw dozens of Wall Street banks collapse and the consolidation of the Big Six of banking namely J.P. Morgan Chase, Citigroup, Goldman Sachs, Morgan Stanley, Bank Of America and Wells Fargo. Now after they have reaped the benefits of a $100 billion stimulus package, they have roared back to profits and sense the opportunity to grow more profitable capitalizing on market volatility.
National debt and budget deficits of both Europe and US are way out of shape. They have even lost their nominal reserve base as politicians were forced to save defaulting banks and industries due to the 2008 sub-prime crisis. This weakness has become an opportunity for the banks who are writing credit default swap contracts in thousands and betting that California, Greece, Spain and many others would default in their debt obligations as they are all over borrowed today.
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