If you work for a big bank, say Bank of America (great name), what would happen if the bank is broken up? Well, that would be very complicated financially, but the result is probably not that hard to predict. Most obviously, deposits would need to stay in the core bank. What would this mean for the way the core bank works to succeed, the non core products it distributes, and the way its deposits fund investments compared to the way things are now? I suspect less net deposits taken out of the community and more loans made in the community.
The different businesses would be spun off to shareholders or sold. Watch the ball here. The Investment Bank is going to want and need a disproportionate share of the capital if they want to maintain their lifestyles. Absent the cloak of respectability the bank provides, they are going to want to be the next Goldman. Watch the ball. Capital is critical. In fact, as a sort of mind game, I wonder how much capital regulators or the SEC or Moody’s would require? What would that leave for the bank?
Is the core bank impacted by “Originate to Distribute” type issues? Does it sell swaps? What happens to the swaps after that? Good questions. Why the push on credit cards? Because they can be securitized. Would we not better serve our clients if we made them direct consumer loans, even some unsecured loans like we used to a long time ago, at a reasonable rate, with a fixed payment that fully amortize in five years instead of minimum payments that drag on forever, endless extra charges and arbitrary changes in terms? Would that not be a good plain vanilla product for the client?
How would management change its customer service approach? Would it? Would you have mysterious phone menus cloaked in phone menus and hidden in an enigma?
What would the core banks funding cost be if it did not have to worry about the high leverage, senior unsecured bonds and the CDS spreads needed to support those? Maybe the core bank could both make more money and provide better deposit rates to savers. I don’t know. Where is the Congress on this? Why not look at the upside instead of just the fear of systemic risk, important as that is?
Studies consistently cite that the efficiencies (economies) of scale end and $100B or so. If that is the case, does that not make the multi million dollar men at the top of the pyramid the actual problem? Money is diverted from the branch to the Executive ranks, Private Wealth, and the Investment Bank. It is reverse Robin Hood.
So what do the majority of bankers have to fear from a break up? Nothing. It would bring management closer to the customer and the employee, create a better customer experience, more equitable pay, better teamwork, and a return to values oriented banking.
Given this common sense, all branch based folks at the thousand and thousands of branches should write their congressmen and women and Senators and ask for the passage of strong TBTF legislation that would restore dignity to their profession. Let Private Wealth and the I-Bank float on their own. If you are a shareholder in your 401K or otherwise, you will still get a piece of that action. The value of the parts is generally greater than the value of the whole anyway. It is a win-win-win except in the Executive wing and on Wall Street, which is out of touch with Main Street anyway.
Maybe we should organize a million banker March in DC for financial reform. Too bold?