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Johnson: Mega-banks can’t move offshore

Ignore threats from mega-banks that they will move to another country if regulation in the U.S. gets too harsh, says economist Simon Johnson, professor at MIT, blogger at BaselineScenario.com  and co-author of “13 Bankers.”

They can’t move, he says, because they’re so big they have to have a large nation to back them up if they get into trouble.

From Baseline Scenario February 3:

In this context, the idea that megabanks would move to other countries is simply ludicrous.  These behemoths need a public balance sheet to back them up, otherwise they will not be able to borrow anywhere near their current amounts.

Whatever you think of places like Grand Cayman, the Bahamas, or San Marino as off-shore financial centers, there is no way that a JP Morgan Chase or a Barclays could consider moving there.  The “national champions” of banking are actually very poorly-run casinos with completely messed-up incentives; they need a deep-pocketed and somewhat dumb sovereign to back them.

The latest credit rating methodology from Standard and Poor’s says essentially just this – henceforth, it will evaluate banks not just on their “stand alone” creditworthiness, but also in terms of their ability to attract generous support from a creditworthy government in the event of a crisis.

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