Since long long ago, banks have been referred as “too big to fail” for basically 2 reasons. One is that it is supported by the government who will offer them bailout. The other is that banks usually have a large amount of assets.
But now, the first reason might not exist anymore, according to new global rules created by the Financial Stability Board(FSB). After judging the fairness for endlessly bailing out banks with tax payer’s money, FSB decided to let the stakeholders for the bank pay for bank’s loss.
There is some influence that the rule has on banks. First, the customer segments for the bank might change due to the fall in stability in bank. For a bank, the key activity is to keep customer’s money. When a bank is less reliable, it fails to perform its key activity well, losing customers (and their trust).
For the same reason, conservative stock buyer may stop buying bank stocks since the level of stability for banks NOW is no longer a point of differentiation.
Loosing its existing customer segments, value proposition and the reliability for performing its key activity, banks may have a hard time repositioning itself.
Work Cited
“‘To Big To Fail’ bank rules unveiled by market regulators” www.bbc.com <http://www.bbc.com/news/business-29982181>Nov 10, 2014
Source of Picture
http://www.talkmarkets.com/content/news/24-banks-fail-eu-stress-tests?post=51959
http://www.forbes.com/sites/chriswright/2014/11/11/one-country-one-market-making-money-from-shanghai-hong-kong-stock-connect/