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Study: Bailed Out Banks Kept Making Risky Loans After Receiving Taxpayer Dollars
Think Progress / News Report
Published: Thursday 20 September 2012
Despite this and other clear evidence that the banks are totally uninterested in learning any lessons from the financial crisis, Republicans are attempting to bog down or repeal the Dodd-Frank financial reform law.
According to a new report from the Bank of International Settlements — which provides research to the world’s central bankers — bailed out banks in both the U.S. and around the world continued to be riskier than non-bailed out banks, even after they received taxpayer dollars during the financial crisis of 2008:
We find no evidence that rescued banks reduced the riskiness of their new lending more than non-rescued banks in response to the crisis and the public rescues. Even as lending volumes decreased across the board in 2009, rescued banks continued to write riskier syndicated loans, as reflected by their involvement in the leveraged loan segment and in the spreads charged on the facilities that they originated. We also find, unsurprisingly, that the syndicated lending of banks that later received a bailout was riskier before the crisis than that of non-rescued institutions. [...]
During the crisis, rescued banks did not reduce the riskiness of their new syndicated lending compared to their non-rescued peers. In fact, our results suggest that the relative riskiness of their lending increased.
As Reuters columnist James Saft noted, “This is both astounding and totally predictable. Astounding because it was so clear that those risks were not just foolish but destructive. Predictable because of course the banks realized that they had not been just lucky but had been given a special exemption from death which will be very hard to revoke.”
Despite this and other clear evidence that the banks are totally uninterested in learning any lessons from the financial crisis, Republicans are attempting to bog down or repeal the Dodd-Frank financial reform law.
But several prominent banking executives have said that the size and complexity of today’s mega-banks makes them unmanageable. A recent report found that the financial crisis cost the U.S. economy $12.8 trillion.
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ABOUT Pat Garofalo
Pat Garofalo is Economic Policy Editor for ThinkProgress.org at the Center for American Progress Action Fund. Pat’s work has also appeared in The Nation, U.S. News & World Report, The Guardian, the Washington Examiner, and In These Times. He has been a guest on MSNBC and Al-Jazeera television, as well as many radio shows. Pat graduated from Brandeis University, where he was the editor-in-chief of The Brandeis Hoot, Brandeis’ community newspaper, and worked for the International Center for Ethics, Justice, and Public Life.
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By Kiley Kroh
2 comments on "Study: Bailed Out Banks Kept Making Risky Loans After Receiving Taxpayer Dollars"
September 20, 2012 6:32pm
These large commercial banks, the smaller siblings of national central banks, and by extension the international central banks such as the BIS have simply got themselves involved in the practices of the derivative markets from which there is no escape. They either win or die as they each try to swallow the other. To retrench would necessitate becoming much smaller and probably mean being eaten by a larger fish. Because of their being party to the virtual economy of the derivative world they hold enormously vast positions in terms of dollars. However as the dollar providers to the real economy and sovereign debtors they become untouchable . To curtail these banking practices would be to invite total economic disaster. An example is the vast holdings of J.P.Morgan in interest rate swaps which (along with LIBOR fixing) props up the U.S. bond market and U.S. debt. Would you want to start playing around in that game? This is why bankers do not go to jail and the fines imposed are for public consumption. It will all have to play itself out now that the bets have been laid. All we can do is hope and pray. If their system fails to the point of economic destruction then we can bring a new system not based on the debt creation of money and credit with built in safe guards against speculation (maybe as suggested by Steve Keen).
September 20, 2012 8:25pm
My life has changed because what happened after 9/11 forced me to come out of denial. Denial that I didn’t even know I had. It forced me to recognize the fact that during the Bush-Cheney administration our great United States of America willingly sacrificed American blood for Mid East countries’ oil. It forced me to recognize that we do not in practice have two governing parties in our U.S. Congress. Instead of the Republican Party and the Democratic Party in actual practice we only have one party. That one party is the U.S. Corporations Party. And that one party, especially since 9/11, has been in absolute control of our U.S. Congress. Government of the people by the Lobbyists for the rich and powerful U.S. Corporations made it easy for our great nation to sacrifice blood for oil. In addition to the controlling influence our U.S. Big Oil corporations have, we also have experienced the controlling influence of our Big U.S. banks and Investment firms. Specifically evidenced by the way many billions of dollars worth of fraudulent Mortgage Backed Securities (MBS’) were created by Wall Street and sold to “unsuspecting” and naïve pension fund managers and investors. The result of all of the above actions caused our financial crash in 2008. When adding the unpaid cost of the Iraq and Afghanistan wars to the fraudulent Wall Street MBS investment packages the sum equals the Multi Trillion Dollar Debt which we are now experiencing. We cannot permit our gridlocked Congress to continue in its present condition. There is only one way to heal our Congress and that is by taking the money out of politics. And the only way to do that is with a simple Amendment to our Constitution. To see how and why that is done click on, or copy and paste into your browser this link: http://signon.org/sign/take-money-out-of-politics