THE WORLD’S biggest banks have been criticised as too big to fail, endangering the global financial system and drowning out vital competition from smaller, more nimble lenders.
But this month the titans of the sector are showing their strength and proving that bigger sometimes is better.
Fixed income revenues are down at most of the major banks that have reported so far – Citi, Goldman Sachs, Deutsche Bank.
Mounting regulations combined with more scrutiny of traders’ behaviour and the end of a long bull run in the market have caused a sudden drop in trading revenues from the sector.
It is one factor that has pushed Deutsche Bank to a loss in the fourth quarter of last year, shocking markets. But co-chief executive Anshu Jain admitted the bank’s size does not help.
He said growth markets right now are the US and equities, and Deutsche does not have an edge over its rivals in either of those.
So a bigger bank would be able to offset weak Europe and weak fixed income with strong US, something it cannot do quickly.
And other banks like Goldman showed the value of diversification by more than doubling revenues in equity underwriting.
In some circumstances big banks are dangerous, and it is right that the industry is taking steps to end the problems of too big to fail. But when their scale comes with diversification they can also be safer and more predictable.