Thursday, July 16, 2009

Banking in a Commad and Control World: You Are Either In, Or Screwed

There are two separate banking sectors in the United States today. There is the Goldman Sachs/ JP Morgan sector and there is everyone else.

If you are Goldman or Morgan, you can be bailed out, gifted huge financial operations and go on to make billions. If you are not, you come under the very watchful eye of government.

From today's FT:

Citigroup is close to a secret agreement with one of its main regulators that will increase scrutiny of the US bank and force it to fix financial, managerial and governance issues.

WSJ reports:

Bank of America Corp. is operating under a secret regulatory sanction that requires it to overhaul its board and address perceived problems with risk and liquidity management, according to people familiar with the situation.

Rarely disclosed publicly, the so-called memorandum of understanding gives banks a chance to work out their problems without the glare of outside attention. Financial institutions that fail to address deficiencies can be slapped with harsher penalties that include a publicly announced cease-and-desist order


  1. I think the heading should have read "Command and Control"

  2. Wenzel,

    This is the kind of thing that strikes me as so obviously NOT an economically efficient optimum, yet your average "economist" in academia will ignore this (inevitable) reality in government-regulated banking systems and still argue that government can increase efficiency through transparency, sound management and reserve requirements, etc. etc.