"Too Big to Fail Rules Hurting Too Small to Compete Banks"
Original Article by Christine Harper of Bloomberg Markets Magazine
In this article, Harper covers the reality of regulators wanting safety, investors wanting profits and employees wanting bonuses. In response to regulators, banks have reduced their dependence on borrowed money. To answer investors, they're cutting costs and exiting businesses that don't deliver a big enough return on equity. Employees who haven't lost jobs or fled to hedge funds are getting more of their pay in stock awards that are tied up for as long as five years.
Since the stakes are so high, How executives handle the situation will not only separate winners from losers, but will determine the safety of the largest financial firms. Banks are "Too Big To Fail," because their collapse would wreak so much damage that governments would be impelled to rescue them, Harper explains.
It's been five years since governments in Europe, the U.K. and U.S. used about $600 billion in capital to rescue banks during the worst financial crisis since the Great Depression. With regulators trying to ensure it never happens again, some banks have grown bigger and more complex.