Too Big to Save

In the US people are concerned about the too-big-to-fail banks. But compared to some, we have it easy.

Deposits in our biggest banks total about $3 trillion-less than a quarter of the economy. But in the UK and Australia, big-bank deposits just about equal their economy, and in Belgium and Switzerland, deposits are double those countries’ GDP.

That’s what’s behind what the G-20 did last week. The IMF issued member countries new “Special Drawing Rights,” IOU’s from one country to another. This would allow some of these over-levered European countries the ability to borrow from the US or Japan-countries whose economies dwarf their big-bank deposits.

If something goes wrong over there, this means that those countries can borrow money from the US to support their banks. That doesn’t mean that we ‘d be rescuing them: that’s the responsibility of their home countries. But these borrowings would give those banks time to sort things out.

No one wants to fund a bail-out. But I give our leaders credit for planning ahead. Let’s hope that they don’t to bank on it.

Douglas R. Tengdin, CFA
Chief Investment Officer
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