Big banks are turning into big babies right before our eyes. They're whining about the new Basel capital surcharges that they fear will hurt their competitiveness. Spare me the crocodile tears. Big banks have all the competitive advantages in the world. They can borrow at the Fed's discount window at next to nothing. Their lobbying gets them first in line for taxpayer money to bail them out of self-inflicted balance sheet disasters. Their name recognition gets them right in the faces of customers who are too busy to shop around.
The real deal is that too-big-to-fail banks have too many competitive advantages from their brand name recognition, political influence, and economies of scale. Forcing them to hold more capital is a prudent move. Even the Fed's academic research shows that capital requirements stabilize an otherwise unstable system. Big banks' size used to be a mental shorthand for quality and reliability. That heuristic is gone. Basel III is an attempt at a revival of sanity.
The real deal is that too-big-to-fail banks have too many competitive advantages from their brand name recognition, political influence, and economies of scale. Forcing them to hold more capital is a prudent move. Even the Fed's academic research shows that capital requirements stabilize an otherwise unstable system. Big banks' size used to be a mental shorthand for quality and reliability. That heuristic is gone. Basel III is an attempt at a revival of sanity.
