I realize this is not a tech focused piece and that’s generally why you come here but since a financial crisis generally affects all industries (including tech), I thought its worth sharing the news that the government just told us indirectly that big banks are still too big to fail. In order to ensure execs in financial companies don’t make decisions which wreck their companies, industry practice today says execs have to defer part of their pay for a period of three years. Now, the largest firms would have to up that number to more than four years according to the Wall Street Journal. Seven government agencies are involved and the number of years that compensation can be clawed back will increase to seven in some cases.
This tells us banks are still too big to fail – in other words, one big bank going down could take down many others and have a cascade effect on the entire economy.
In fact, the Dodd-Frank regulations passed by the government to prevent too big to fail actually caused the smaller banks to exit the business because they can’t compete with the giants. Specifically, Goldman Sachs CEO Lloyd Blankfein said last year. “This is an expensive business to be in, if you don’t have the market share in scale. Consider the numerous business exits that have been announced by our peers as they reassessed their competitive positioning and relative returns.”
In other words, now banks almost have to be too big to fail to be in business. Blankfein’s comments have just been confirmed by the US government.