If there is someone in the word who knows more about Zombie Bank(ing system)s than Ed Kane of Boston College they have been very quiet. In fact, Ed coined the term, and the analogy. Tomorrow he testifies at the Banking Inquiry and it should be entertaining, informative and provocative.
His testimony is on his website and is downloadable here Kane on Banks. As ever the cross questioning will be interesting. Kane is a past president of the American Finance Association, has written over four decades on banking systems and banking failure, knows Ireland well. He has spoken twice as keynote at the INFINITI conference here in TCD on these issues. What a pity that, as chair of the conference I state this with confidence almost no policy makers attended. When he speaks it is from a wealth of experience gained over decades as an academic, banker, advisor and consultant.
Some choice pieces from the testimonial document
I maintain that society must recognize that the deliberate exploitation of too-big-to-fail guarantees is a form of criminal theft and develop ways to punish both individuals who engage in it directly and higher corporate officials who can be shown to have encouraged it.
No matter what regulators finally do with capital requirements, if they do not set up sanctions that punish individuals for acts of willful or complicit safety-net theft, we are going to get even more theft in the future.
But by looking across the cycles, we can also discern the effects of cumulative learning about how to benefit from safetynet guarantees and of growing exploitation of the value of these guarantees by these firms’ managers. With each successive recession, more benefit is extracted by too-big-to-fail institutions. These patterns ought to be observable in the Irish scene as well. I fear that far greater and more-dangerous benefit flows will emerge in the next crisis.
Here in Ireland, banking appears well on its way to becoming a duopoly (see Gurdiev, Larkin, and Lucey, 2014) with a fearsome ability to pervert and abuse the rules of your financial roads.
In my view, aided and abetted by deferential regulators, US, Irish, and other European bankers have committed crimes on the public that deserve to be characterized as theft by safety net. The victims are current and future citizens. The people who commit this crime are individual managers and supervisors
I imagine the wigs will be carefully attending the comments and questions…