Last month, I wrote about a fledgling European bank revolution led by the now retired Manchester United soccer player Eric Cantona.  Today was the day millions of people across Europe were going to head to their banks, withdraw all their money and crash the entire banking system.  How did it go?  A total failure.  Officials report no excessive withdrawal demands in either Europe or France.  Even Eric Cantona didn't bother to participate, despite several journalists waiting for him at his local bank branch where he claimed he would take his money out.  Stick to soccer pal, Thomas Paine you ain't!

Since Mr. Cantona's plan didn't work out, here's an idea:  have governments actually do their job and enforce smart regulation to ensure banks don't cause economic crashes.  What can be done?  Here's five things that would help immensely:
  1. Re-establish Glass-Steagall.  This intelligent piece of legislation was passed in 1933.  It ensured a separation between depository banks and investment banks.  Basically it stopped banks from gambling with their customer's deposits.  It was overturned in 1999 thanks to the despicable Jim Leach of Iowa and Phil Gramm of Texas. 
  2. Reduce bank leverage.  Heading into the credit bubble in 2007 some of the most irresponsible banks were leveraged 30 to 1 or more.  Obviously, a small drop (3%) in the value of their assets renders them immediately insolvent.  Reducing the allowed leverage allows for a larger buffer before a bank goes under.  Bank executives don't like it because it reduces their profits and, more importantly, their bonuses.  Too bad.
  3. Change Executive Compensation so it's more closely tied to long-term results.  Currently, all these bank executive bonuses are tied to current year profits.  As such, their incentive is to increase short-term profits and to hell with the long-term consequences.  Requiring that bonuses are tied to average profits over the past five years would completely change their motivation from short-term profits to long-term stability. 
  4. No more Too Big to Fail.  If a bank is so large that it's insolvency can crash our entire economy than it needs to be broken up.  The size of a bank's liabilities should be restricted to no more than 1% of GDP or whatever number ensures a bank failure will not cause massive collateral damage.
  5. LET THESE SH*TTY BANKS FAIL!  This is most important.  An integral part of capitalism is failure.  If you don't allow incompetent banks to fail then you have a complete failure of free markets.  End of story.  I like the prepackaged GM bankruptcy, that worked quite well.  The executives were fired, shareholders lost their investment, bondholders took a huge hair cut and the government provided a bridge for the company to be restructured.  That's what should have been done for JP Morgan, Goldman Sachs, Wells Fargo and every other incompetent and failed bank.  It's the only way they'll ever learn not to take too much risk and stick their losses on the innocent taxpayers.
So we can have an actual revolution one day when the taxpayers get so fed-up they really do crash the banking system or we can enact intelligent legislation and ensure the banking system starts to work properly again.  I know which I'd prefer. 



Eric Cantona Protest Fails to Put Boot into Banks