It's possible to go under doing Bread & Butter stuff
The too-big-to-fail concept originated in the 1980s whenContinental Illinois had to be rescued. That bank wasn’t
involved in exotic financial activities but rather
straightforward commercial banking, taking deposits
and making loans. Unfortunately, it made too many bad
loans, as have failed predecessors over the centuries.
A.Gary Shilling
The idea that banks go under because they engage in trading is not correct. I guess most of the Banks problems arise from
a)Cheap credit. To much credit at small spreads. Business at the wrong price.
b)Liquidity problem. Central Banks prevent this from happening.
c)loss of confidence. If this happens everybody want their money back now!
As A. Gary Shilling says in his excellent INSIGHT when a lot of people lose money there is a cosmic need for scapegoats. Derivatives & trading are easy ones but the most of the time the real reason for Bank failures is Cheap Credit. When you want to grow, be number one on the league tables you do business at the wrong price.
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