Why forced bank consolidation plan is questionable

Conventional wisdom among some bankers that forced consolidation is the only way to strengthen banks to withstand industry shocks, is questionable on several counts.

KCB Group was appointed receiver manager of the collapsed Chase Bank with plans to take up majority stake. [Photo: WILLIS AWANDU/STANDARD]

First, there is enough empirical evidence to prove that all banks, big or small, fail when they fall victim to reckless and, usually, insider lending. The question of size is, therefore, irrelevant. Indeed, experience from the better capitalised banks in Europe and America has demonstrated many times in recent past that they have only been kept afloat at the hapless taxpayer’s expense because the governments considered them “too big to fail”.