‘Too big to fail” has echoes of the financial crisis stretching through 2008 and beyond, where lenders of size, stressed and stretched by bad loans and lack of liquidity had to be bailed out before they took the global banking system down with them.
But what about “too big to succeed?”
As The Wall Street Journal asked this week, the question before the nation’s “largest financial firms is increasingly whether the government has made it too expensive to be big.”
The financial publication said that on Tuesday (Jan. 12), large insurer MetLife became the second player of size to jettison some of its weight, with the mindset that it’s simply too expensive to be that big, following General Electric Co., which sold its finance operation, GE Capital, last year.
The moves are not done by the decree of bankers or regulators, though as WSJ put it, indirect pressure has had a hand in pushing finance firms to slim down. The regulatory environment is stringent enough so that profits are shaved down a bit — a trend underscored by the fact that large financial firms in the United States have taken on a cumulative $641 billion of capital just to meet regulatory hurdles.
[bctt tweet=”Indirect pressure has had a hand in pushing finance firms to slim down.”]
Other firms that could see similar restructurings could be Prudential Financial and American International Group, said WSJ. The “toughest rules” have been levied upon firms with $50 billion or more in the assets column of the balance sheet, and smaller, nimbler players are as much as 10 percent more profitable than their outsized brethren.
Separately, regulators are looking to see whether a dozen banks across the country have adequate roadmaps to navigate failure, if need be, instead of taking on a bailout. Better, more conservatively structured capital positions will help weather any storm.
Bank reactions have been mixed, with firms like Citigroup getting rid of 17 percent of its assets base, while firms, such as JPMorgan, have said in the past that they are comfortable with the size and scope of operations.