Larry Summers Argues Big Banks Losing Value

Big banks are no safer now than they were before the financial crisis, according to a new analysis by a Harvard duo that includes former White House economic advisor Larry Summers.

Not only does the paper assert that the possibility of a too-big-to-fail scenario still looms, but they also said the increased regulatory environment actually has played a part in keeping the system endangered.

“We find that a substantial part of the reason banks have become riskier and effectively more leveraged is a decline in their franchise value,” the researchers wrote in a white paper for the Brookings Institution. They added that “it appears plausible that a large part of the reason for declines in franchise value is regulatory activity and the prospect of future regulation.”

In essence, the paper argues that the regulatory pressure through Dodd-Frank and other measures has made banks a tougher investment.

The paper is co-authored by Natasha Sarin and was scheduled for presentation at a conference Thursday, which happens to be the eighth anniversary of Lehman Brothers’ bankruptcy filing, a crucial moment in the crisis. Summers has served under multiple presidents and headed the National Economic Council for President Barack Obama.

via CNBC

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza