Standard and Poor’s to evaluate banks based on their potential for fucking over taxpayers

[eridani]

http://baselinescenario.com/2011/02/03/the-ruinous-fiscal-impact-of-big-banks/

But next up for the US economic outlook is not necessarily another ”too big to fail” boom-bust-bailout cycle; we may well move on to “too big to save”, which is what Ireland is now experiencing. When reckless banks get big enough, their self-destruction ruins the fiscal balance sheet of an entire country.

In this context, the idea that megabanks would move to other countries is simply ludicrous. These behemoths need a public balance sheet to back them up, otherwise they will not be able to borrow anywhere near their current amounts.

Whatever you think of places like Grand Cayman, the Bahamas, or San Marino as off-shore financial centers, there is no way that a JP Morgan Chase or a Barclays could consider moving there. The “national champions” of banking are actually very poorly-run casinos with completely messed-up incentives; they need a deep-pocketed and somewhat dumb sovereign to back them.

The latest credit rating methodology from Standard and Poor’s says essentially just this – henceforth, it will evaluate banks not just on their “stand alone” creditworthiness, but also in terms of their ability to attract generous support from a creditworthy government in the event of a crisis.

New York-based banks might move to London, and vice versa. But the Bank of England is far ahead of the Federal Reserve in its thinking about how to rein in banks – see, for example, the new paper by David Miles (member of the Monetary Policy Committee in the UK) on the need for much more equity financing in banks than specified in the Basel III agreement.