How would Big Banks Hurt the Economy?
There seems to be rumor in the market about speculation on the same side. The idea of handling banks forcefully turn them to the down is very satisfying. But unfortunately, a fellow at the Brookings Institution says that all steps taken to be a good makes more harm than good result. Breaking up big banks would hurt the economy and finally it ends up hitting the average person.
The question hit in our mind that how would big banks hurt the economy? The answer is very simple. Some businessmen think that giant industries need banks that can work with them not all over the world but to their supply route. The reason is quite understandable. Though big banks broke up, the rest of the world do not do the same with them. However, to make American banks with small ground is like to give the heap of customers to European and Asian banks.
Though Bear Stearns and Lehman Brothers were not too big stuffs, the collapse of these banks had a major impact on the market. In banking, the size of the bank (big or small) doesn’t matter always. However, most of the citizens of America believe in terms of as big as good. Considering banks by its size sometimes gives us a false statement. Instead of that, do a better job of closing loopholes that will force to follow the rules and stop them from risky trade.
Smaller banks would have less ability to lend. Those companies which are trying to grow and seeking for large amounts can’t add jobs if they can’t get the money to grow. To become a big bank is not a crucial condition but to be a big and not have higher capital requirement is the crucial one. Therefore, banks save more money to reduce losses.
However, many banks are against this option because banks have to hold a small percentage of money that flows in and out of their branches and computers on daily basis. They can’t be forced to keep more money and not let them lend. In spite of this, it is also true that if bank know that it has sufficient emergency fund at several time, it may reduce its worries for more than 70%. There is also a concept of ‘Too big to fail’ in the mind of some economists. If a bank is badly managed, then it fails oftentimes.
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