Elementi Quantitativi
Vincenzo Poll
"Pestis eram Vivus, moriens your terminal was" Martin Luther
Following the publication by the European Commission forecasts for the next two years, it appears now that the economy will move towards a slight recovery after the crisis in which she had entered in September 2008. Now that the danger of a long depression seems to have gone will be the question on those elements that have caused the financial crisis in a way that, as Obama said in his speech about reform the regulation of finance, which back "the days of irresponsible and uncontrolled excesses that have been the cause of the crisis" (1).
Many will remember the failure of Lehman Brother , the investment bank founded in 1850 and now known as the most illustrious victim in the financial world. The failure of this institution has brought down the public's attention on the theme: "The banks are too big?" And of course the policy of "too big to fail".
Just this policy would be the basis for many of the problems underlying the crisis in that it created and still perpetuates one of the most major cases in the history of what economists call moral hazard. The objective of a series of articles would be to analyze the consequences of the size of banks and some possible policy proposals to solve this problem. But first we must understand if they are really great.
I'm really so great?
When it comes to this subject is not often faced with the quantitative definition of the problem. In fact, the problem arises to understand what it means to be big in the world of finance and economics in general.
An easy comparison can be made between the current assets of some banks and the GDP of their home countries.
As you can see in some countries in fact the assets of individual financial institutions are even higher than the GDP of the state itself. Stands out in particular RBS (Royal Bank of Scotland) who is now 70% owned by the government, which already plans to write a scissor kick to the budget of this colossus. It seems strange to the relatively low number of notorious American banks like GS and Bank of America. A case must be made a few clarifications: First, the GDP of the United States is vastly greater than that of all other states considered (it is even, alone, about one-fifth of global GDP); Second, even if relatively some of these smaller institutions play a major role in certain international markets (their failure would have a huge burden because of the so-called systemic risk, which will be discussed in another article), and thirdly is not considered that many activities of U.S. banks are, or were out budget and make up what Mauro Guerra called "Shadow Banking" (3). Measurements (to come very rough) can therefore be misleading. The table has more than a few flaws such as not considering the results after the acquisition (I have an aggregate budget of Merrill Lynch to that of BOA, I do not want to ...) and featuring a large no. Switzerland is not present because the relationship is simply too big ...! Only UBS in 2008 for assets held more than three and a half times, a relationship that has fallen to just under three times in 2009. Once saw this we might ask: but governments are able to cope with the failure of institutions, at least protecting the creditors? The thing seems pretty complicated ...
using the past as a proxy for banks' losses on those who are not shareholders and comparing these values \u200b\u200bwith the General Government Revenue we obtain the following result (which is not taken into account with UBS in Switzerland because the relationship and 12).
As you can see, while using all their income, governments could never individually cover losses on the liabilities of banks, which would cause serious damage to the financial system. Of course this is a case practically only theoretical because it is absolutely inconceivable that all the assets of a bank has zero value of the blue, and perhaps most telling is a comparison with certain types of activities. However, it should take into strong consideration the estimate of potential losses of a bank is extremely difficult to assess and that even today the instrument used (VAR or Value At Risk) has proved quite ineffective (3). Moreover, the graph we can suggest the scale of which would be necessary to have to deal with a small default on debt. For example, If Banco Santander would not be able to repay 10% of its debts, the government should commit around 20% of his income if he decided to cover the loss. A pretty impressive figure. stability at risk
The greatness of any of these banks and makes it impossible to treat them like many other institutions of the financial system. The risk that they would cause to the economic stability of those countries in which they operate would be enormous in case of a normal bankruptcy proceedings. Lord Turner, chairman of the Authority for the Financial Regulator, has recently argued that "a part of the financial sector is useless from a societal perspective and is destabilize the British economy "(4). The harmful effect that such institutions could have on the "political and economic life of the country" had already been pointed out almost a century earlier by the jurist Louis Brandeis to the principle of the "curse of bigness" (5). Should not be overlooked, in addition to purely quantitative effects, even the psychological aspects of the failure of these institutions. The panic that follows the failure of a giant can lead to messy leaks from the market with devastating effects on both the quotations on the budgets of other institutions that are more healthy.
is therefore natural to ask what are the problems that the presence of these institutions can be created in the system Financial but I think it's worth to dedicate a separate article.
(1) Barack Obama Speech on Financial Sector Reform, available at http://www.ilsole24ore.com/art/SoleOnLine4/Finanza% 20e% 20Mercati/2009 / 09/testo-discorso-obama-14092009.shtml? UUID = 5408f550-a14f-11de-a8df-36fb8db592ee DocRulesView & = & Education fromSearch
(2) Mauro Panzera Fabio War and "The Shadow Banking and the four islands of 'world economy. " In LIMES Supplement number 4 / 2009.
(3) Various solutions are being proposed for new risk index, among these is worth remembering the covariates, the risk index sitemi, Tobias Adrian and Markus K. Brunnermeier "enough hatching" on the site of Princeton http://www.princeton.edu/ ~ markus / research / papers / covariance
(4) An interview with Prospect magazine, reported sentence in "Forget Tobin tax: is there a better way to curb finance," William Buiter, Financial Times, 1/9/2009.
(5) The New York Times, Eric Dash 20/06/2009: http://www.nytimes.com/2009/06/21/weekinreview/21dash.html?_r=3 & th & emc = th
(6) With regard to the data: • To
data banks have used the semi-annual reports of the institutes of 2008 and considered
06/11/2009 • To the governments I referred to the dataset of the Worl Economic Outlook International Monetary Fund in October found at http://www.imf.org/external/pubs/ft/weo/2009/02/weodata/index.aspx data of GDP at current prices are in U.S. dollars.
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