For those who feel redemption on BSC failing as payback for all the bad loans written- BSC failing is not good for you or anyone else. I assume most of you don’t stuff your dollars under the mattress – so how would you feel if your bank has a run on it and you lack access to cash – anyone know how long before you get your $$ back from FDIC? Or if others started charging you a premium to accept your checks due to the level of risk they feel they are undertaking by accepting a check from your bank? Swap trades were done at a premium last week involving Bear. JPM bought BSC in part due to what a failure would have done to its own balance sheet, and ward off additional counterparty risk. Its not as cheap as the superficial details portrays – this deal will cost $6B estimated in transaction costs to JPM.
BSC “rapid” deterioration was a modern day run on the bank. If Lehman or another bank fails this week- what will it do to the banking sector? There are complex interdependencies amongst all the banks. If everyone suddenly withdrew their cash positions and stopped doing business with their bank- even for a day, as happened throughout the last week at Bear in their institutional business, what do you think will happen? Don’t cheer too loudly if you’re not willing to risk your own $$$s in the bank.
