#UBS

When I gave a talk last week about bank-merger policy, I was asked an important question:  if I’m right about the franchise-value challenges facing most U.S. banks, then why is banking here doing so much better than in other advanced, market-oriented nations?  The answer in part is that, in a pond full of ugly ducklings, a scrawny mallard with just a few more feathers looks a lot better.  But, it’s more complicated than that.  The reasons why make it clear that, if bank-merger policy remains implacably set against economies of scale and scope, then only a very few, very big birds and more than a few nonbirds will own the waters.

As in any comparative analysis, the first step to judging U.S. banks versus those in other nations is to define which banks are being compared.  Most other nations have very few, very big banks often considered national-champion charters dedicated as much to supporting their sovereign governments as to placating shareholders. As our recent merger-policy paper details, national champions are insulated from market discipline because they are almost always expressly too big to fail.  Credit Suisse was an exception to this rule, but only because it failed so fast and Switzerland was so unready for resolution that it could do nothing more than fold one national champion into another, UBS.

For all the talk of TBTF banks in the U.S. and the benefits the very biggest enjoy during flight-to-safety situations, none are yet a national champion, and a good thing …