All Banks Need To Prevent The Next Lehman Brothers Is Several Hundred Billion To 1.2 Trillion Dollars

Seems easy enough.

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Updated:: Jan 14, 2019
Original:: Nov 9, 2015

A small price to pay not to be this guy.

Banking behemoths led by HSBC Holdings Plc (NYSE: HSBC) and JPMorgan Chase & Co (NYSE: JPM). now know the cost they’ll have to shoulder so the global financial system doesn’t have another Lehman moment. The Financial Stability Board, created by the Group of 20 nations in the aftermath of the crisis, published its plan for tackling banks seen as too big to fail...The shortfall banks face under the 18 percent measure ranges from 457 billion euros to 1.1 trillion euros ($1.2 trillion), depending on the instruments considered, according to the FSB. [Bloomberg]

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One way you could spend this slow week is reading the "living wills" submitted by a bunch of banks telling regulators how to wind them up if they go under. Don't, though: they're about the most boring and least informative things imaginable and I am angry that I read them.* Here for instance is how JPMorgan would wind itself up if left to its own devices**: (1) It would just file for bankruptcy and stiff its non-deposit creditors (at the holding company and then, if necessary, at the bank). (2) If after stiffing its non-deposit creditors it didn't have enough money to pay its depositors it would sell its highly attractive businesses in a competitive sale to willing buyers who would pay top dollar. This seems wrong, no? And not just in the sense of "in my opinion that would be sort of difficult, what with people freaking out about JPMorgan going bankrupt and its highly attractive businesses having landing it in, um, bankruptcy." It's wrong in the sense that it's the opposite of having a plan for dealing with banks being "too big to fail": it's premised on an assumption that the bank is not too big to fail. If JPMorgan runs into trouble that it can't get out of without taxpayer support, it'll just file for bankruptcy like anybody else. Depositors will be repaid (if they're under FDIC limits); non-depositor creditors will be screwed just like they would be on a failure of Second Community Bank of Kenosha.

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