Zombie Banks at Halloween

Why does Hewlett Packard spin off its personal computer and printer operations while the Bank of America remains a financial supermarket? For that matter, why is eBay compelled to shed its PayPal unit while Citigroup continues to operate retail bank branches and institutional service units under one roof?

In just the past two weeks, Hewlett Packard and eBay announced divestitures of significant ancillary operations in order to focus more intently on their core businesses. Meanwhile, Bank of America and Citigroup were preoccupied with their respective $8.5 billion and $16 million regulatory settlements while maintaining their existing lines of business.

Why is this possible? Why do technology firms cut themselves to pieces while global banks pay for past transgressions and continue practicing “business as usual”?

Well, in the turbulent technology sector, firms like Hewlett Packard and eBay must compete with numerous new rivals like Lenovo and Square. Heck, even the “venerable” Apple only emerged as a technology titan with the introduction of the iPod a decade ago.

But Bank of America and Citigroup? They and their four competitors of the American “Big Six” banks (i.e. Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo) are all more than a century old. Only one was even founded in the twentieth century; the baby of the bunch, Bank of America, was launched in 1904 as the Bank of Italy in San Francisco.

Oddly enough, both the technology sector and the financial service industry maintain comparable traditions of innovation. After all, who can say whether the iPad and the Google Glass are more ingenious (for better or for worse) than the Interest Rate Swap and the Collateralized Debt Obligation?

So the secret of the longevity of the nation’s largest banks cannot be attributed to a superior pattern of innovation. But what other factor can explain why great technology firms perish? While ancient banking institutions continue to roam across the country like the zombie undead at midnight?

The answer may be found in federal government policy. Regulators have consistently permitted technology driven firms like General Motors, Kodak, Polaroid, Texaco, and Wang Laboratories to enter bankruptcy court. Despite reportedly becoming insolvent during the recent global economic crisis, however, none of the Big Six banks were ever permitted to do so.

Instead, with the support of TARP and other government aid programs, the banking institutions have been kept alive. Like zombies in a Halloween film, they maintain all of their limbs in perpetuity … and they simply refuse to die.