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Europe should leave TBTF banks to their fate

Government responses to the crisis of 2008 and its continuing fallout have left Europe with too many bloated and inefficient ‘too big to fail’ banks according to UBS boss Axel Weber in an interview for Business Insider:

“Europe is over-banked so you would expect to see the demise of some weak players in the market and then their clients would basically start migrating to other, stronger, banks.  Now a lot of the rescue programmes that are in place, prevent that from happening so whilst all the banks are probably no longer discussing insolvency issues profitability should lead to the exit of some non-profitable banks or less profitable banks, but in a too big to fail environment it’s very impossible almost for large banks to be able to acquire other banks.”

The zero-percent interest rate policy, continuing bail outs of lame ducks, and forcing profitable banks to minimise risk on their balance sheets have conspired to prevent a return to a normal business environment in which bankruptcies, buy-outs and mergers generate the ‘creative destruction’ that allows for innovation and efficiency.

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