WSJ: Not Too Big to Fail. Too Expensive to Exist

hashmander

hashmander

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Not Too Big to Fail. Too Expensive to Exist

Forget too-big-to-fail.The operative question for the country’s largest financial firms is increasingly whether the government has made it too expensive to be big.On Tuesday, insurer MetLife Inc. became the second major firm in the past 10 months to decide that the demands of being “systemically important” in the eyes of regulators may outweigh the benefits of continuing to operate at its current size...The moves show that while the U.S. government hasn’t heeded populist calls to “break up” the nation’s largest financial firms, those demands are at times being answered through indirect pressure from regulators.

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In the banking sector, where policy makers have focused the toughest rules on roughly 30 banks with $50 billion or more in assets, smaller banks with between $5 billion and $50 billion in assets are about 10% more profitable than banks that are above that level, according to an analysis by Keefe, Bruyette & Woods. The shares of those midsize banks accordingly trade at a higher valuation than lenders with $50 billion or more in assets, according to the analysis.

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Another major test looms in the coming weeks when regulators have to decide whether 12 top banks have credible plans describing how they could fail without a bailout—dubbed “living wills”—or whether to begin pressing those firms to simplify or shrink.Policy makers say they aren’t explicitly telling firms to break up, but they also make clear they wouldn’t be unhappy with that outcome.
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slow and steady wins the race.
 
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