Is South Canterbury Finance Too Big to Fail?

Bernard Hickey discusses this question in the video clip and related article. He looks at how closely involved SCF and Hubbard are in the South Island economy. Overall Hickey suggests the bullet should be bitten and SCF put out of it’s misery.

Yet, I wonder if the government is prepared to grasp that political nettle. The next few days will let us know one way or the other.

Some Thoughts:

  1. Intriguingly, what would be the reaction if any potential white knight turned out to be Chinese or Indian?
  2. What would be the reaction if  the means of propping up SCF, by the ‘white knight’ was via a purchase of dairy farms strugging to make their loan repayments?
  3. What would be the public reaction then?
  4. Would we see a demand for taxpayer support of Hubbard and SCF?
  5. Is there justification for taxpayer support of SCF?
  6. Would government rescue result in greater taxpayer losses in the longer term?
  7. Would a government rescue send the wrong message to the economy at large?

5 responses to “Is South Canterbury Finance Too Big to Fail?

  1. I guess that’s the biggest issue for the SCF-Hubbard fiasco: whether to blame to man, the directors, the trustee, the auditor, the securities commission etc. or whether to have another look at the wisdom of governments underwriting financial institutions.

    Supposedly, deposit insurance is supposed to make it easier to shut down or restructure failing or failed financial institutions, but looking at the way this is playing out you have to wonder if it’s just the opposite!

  2. One issue that comes to mind is the issue of governance of major entities.

  3. If you want good governance of major entities, then the too big to fail doctrine must be rejected. We need to have better legal institutions and public policy to a) ensure large banks upon which very large numbers of households and businesses rely on for processing transactions and doing business can be rapidly restructured upon and reopened after failure (with new directors and owners), and b) ensuring that government is precluded from saving or protecting the old owners and directors from being replaced and/or the closure of firms that, although large, are non-viable even if financially restructured.

  4. really, I should add, not addressing the above two factors means that you can talk about good corporate governance until the cows come home and have all sorts of policies and procedures and feel good things, and you’ll still end up with rotten large companies (with lots of nice policies and do good sponsorships and the like).

  5. Broadly I agree with you. Indeed the problems you note are those governments elsewhere have been grappling with through the Global Financial crisis.

    Part of the problem is that many see governance as a sort of tick the box issue, there is a confusion between governance mechanisms and governance in consequence in my opinion.

    Governance is necessarily underpinned by, and reflective of corporate values. Thus an organisation like Enron undoubtedly had a myriad of governance frameworks, but these were of no use as the underlying values were wrong and the culture was written to the core.

    Consequently it is my passionate belief that governance must be driven by principles of personal integrity and a culture of doing what is right; without such an environment you can have all the policies and procedures you like, but you will not have strong and effective governance in my view.

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