Markets favour large, straight-forward banks at the expense of complex ones, according to the director of research at the Federal Reserve Bank of Dallas.
In a new report called “levelling The Playing Field,” Harvey Rosenblum writes that too-big-to-fail banks still “pose a clear and present danger” thanks in part to “favourable government policies.”
He also includes a chart showing that being too-complex-to-fail may not be good for business either.
He looks at the price-book ratios of 12 large-cap banks, which he divides into two categories: those with assets greater than $100 billion in assets and predominantly “driven by commercial/retail banking activities,” and those with more than $100 billion in assets more focused on “global banking or investment services and management.”
Here’s the result:
Photo: Dallas Fed
Rosenblum actually draws a broader conclusion: “Looking at the largest U.S. banking companies, recent stock prices suggest that markets have a gloomy view of bigness.”