Government and Banks

Yesterday I was discussing how the concept of Government has changed or is changing from an idea of "less Government is good" to one where "Government needs to be involved." Watched an interview on CNBC the analyst said she had never imagined the amount of Government intervention she was witnessing and that the current rally in the banks was be manufactured by the Government.

Of course, if the Government intervention is going to stay at that level, then what is the consequence? Suppose the prior business model for the major banks is no longer viable (not my position particularly but the one that was espoused in the interview) what will the new business model look like? Primarily, the current intervention is designed to reduce the risk of a financial collapse. In order to do that they are requiring the banks to maintain levels of "Tangible Capital Assets" of 4% for the "worst case scenario".

It also seams like they are going to prohibit certain types of boutique financial instruments and focus on more traditional lending practices. This most likely means that the banks will spin off the more exotic operations and they will become smaller entities that may engage in high risk transactions, but which will be small enough that if one or more of them fail, it wouldn't collapse the economy.

So the original bank will become again something that looks like banks used to look like. Conservative, relatively low risk lenders, who make sure loans are provided to those who can repay them. Actually, doesn't sound like that terrible a business model over the long term.