I think there are three main reasons why banks have been collapsing:
1. Gearing
Commercial companies should get at least half their funds from equity. Banks routinely operate with much, much less equity.
2. Matching
Borrowing periods should match the life of the assets they fund. Banks routinely borrow short-term to lend long-term.
3. Sensitive giants
Many large banks are too dependent on market and customer confidence for their health.
Solutions may include:
1. Increasing the minimum equity requirement
2. Monitoring average asset life to ensure it is commensurate with average borrowing period
3. Financial institutions may be forced into smaller saleable units
Item 1 is likely. Item 2 will probably be missed. Item 3 will probably not be taken up because there are too many vested interests in larger concerns. Even though small may be beautiful, large concerns are not in it to create beauty!
