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Why Large Banks?

In the Financial Times on July 30, 2009: Josef Ackermann – CEO of Deutsche Bank argues for protection of larger banks. The background: Deutsche Bank is partially an investment bank with small retail banking, big operating loss in the last quarter and Ackermann’s target is still 25 percent return on equity, impossible with classic banking. What does it mean for markets?

In the United States we see nearly each week a bankruptcy of a smaller bank. It seems, Ackermann is right. But was Lehman Brothers a small bank? Little or big has nothing to do whether we loose a bank or not. The key is its equity to prevent declining business.

Do we really need large banks?
Most people need an account, investment products, credit card, some credits for car and travel or mortgages. That’s it! Do we need in our daily life large investment banks with 25 percent return on equity?

How is it with companies?
Sure large banks are able to manage a lot of money, but a network of banks too. If a company is looking for a big deal, then it doesn’t matter whether the money comes from one big bank or five smaller banks. The single different will be, large banks get all profit on its own.

Bigger banks and high risk for economy and customers
How we learnt from Lehman are big banks a very high risk for markets. Many other financial institutes and companies are economically dependent on it. Additional, if large banks operating in retail business many people will lose their money too if such institute goes down the tube.

Finally, I can’t see the economical sense for big banks.

Photo: swisscan



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