It’s increasingly expensive for big banks to maintain their size, especially while they face growing data management challenges, increased capital reserve requirements and regulatory surcharges. Conventional wisdom used to hold that a bigger bank could better spread its risk. With more assets under its control, a big bank can diversify to the point of almost absolute security. Sounds pretty safe, but eroding confidence in too-big-to-fail institutions has upended this model.
Increasing public, government and regulatory pressure have driven a corresponding increase in capital reserve requirements. Two U.S. legislators on the Senate Banking Committee sent a letter to Federal Reserve Chairman Ben Bernanke on Monday advocating higher surcharges for systemically important financial institutions (SIFIs).
Managing data is expensive too. But not managing data correctly also has its price, as Knight Capital demonstrated last week, when it held about $7 billion in stocks as its software broke down.
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