Government Gives Banks "Well capitalised" Kiss Of Death

So investors seem to be deciding to rally around bank shares  today.  For our part, we’re stunned by the one deafness of the regulators statements. Once again, they trotted out the lie about banks being “well capitalised,” which might as well be the epitaph of so many of our failed financial institutions.

  • “Currently, the major U.S. banking institutions have capital in excess of the amounts required to be considered well capitalised,” the FDIC, The Treasury and the Federal Reserve said in their joint statement today.

We take no assurance from this “well capitalised” talk. Why not? Well, look at the history of well capitalised banks.

  • “To be clear, we do not expect to use proceeds of this equity offering to further decrease leverage, but rather to take advantage of future market opportunities, which are abundant. And over all, we stand extremely well capitalised to take advantage of these new opportunities. From a risk management perspective, we continued to operate in our disciplined manner we’re known for,” said Erin Callan, the CEO of Lehman Brothers, in June of 2008.
  • “At all times, the firm had a capital cushion well above what is required to meet supervisory standards,” SEC chair Chris Cox wrote of Bear Stears…after the firm had collapsed.
  • “Both [Fannie and Freddie are adequately capitalised, which is hour highest criteria,” said James Lockhart, director of the regulator of the GSE’s, on July 8, 2008.

But don’t worry. After so many “well capitalised” financial companies collapsing, what are the odds it could happen again? Aren’t Black Swans rare things? Should we be due for at least one failing bank to survive?


NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.