Send a Tweet
Most Popular Choices
Share on Facebook Share on Twitter Share on LinkedIn Share on Reddit Tell A Friend Printer Friendly Page Save As Favorite View Favorites
OpEdNews Op Eds

Are Banks Too Big? Don't Count on Downsizing Anytime Soon

By       Message David Fiderer       (Page 1 of 1 pages)     Permalink    (# of views)   No comments

Related Topic(s): ; ; , Add Tags
Add to My Group(s)

View Ratings | Rate It Headlined to H2 8/31/09

Author 30887
- Advertisement -

A trillion dollars is not what it used to be, which is why any regulator concerned about moral hazard has his work cut out for him.

Twenty-one banks have trillion-plus balance sheets, according to Of those, only three are based in the U.S.* Forty banks hold assets in excess of $600 billion, the size of Lehman Brothers' balance sheet at the point when its Chapter 11 filing set off a global financial panic. In other words, there are an awful lot of financial institutions that are that are too big to fail.

If a bank is too big to fail, is it too big?The Washington Post posed that question recently. If the answer is yes, then the solution is international.

Taking note of something was obvious a year ago, when the shot gun bank mergers were announced, the Post reported that JPMorgan Chase and Bank of America, and Well Fargo have increased their market shares after acquiring Washington Mutual, Merrill Lynch, and Wachovia respectively.

- Advertisement -

Yes, these U.S. banks are huge. But the Post's analysis was somewhat provincial. A single bank in Edinburgh, Royal Bank of Scotland, is larger than JPMorgan and BofA combined, according to Bankersalmanac.

- Advertisement -

Foreign banks are not only big, they have much more of an international presence. Foreign banks control over 30% of the $15 trillion of the financial assets held by banks in the U.S., according to the IMF. European and U.K. banks hold about a third of their assets outside of their home country; for American banks, its only 13 percent. European banks have a much bigger presence in emerging markets.

What are the chances that Timothy Geithner, if he were so inclined, would get a favorable response if he approached his counterpart in France and asked, "I'll break up Chase and BofA, into a bunch of $500 billion banks, if you'll do the same with BNP, Agricole and Societe Generale,"? My hunch is that the French, or any other member of the G8, would preface their, "No thank-you," with an icy stare.

In a certain respect, a bank's international presence reflects its host country's international influence. Financial ministers are very conscious of prestige. Despite all the handwringing about systemic risk from overly large and interrelated financial institutions, governments don't seem to be dissuaded from the longstanding notion that, for banks, bigger is better.

Of course, the U.S. government can act unilaterally if it wants to address the moral hazard issue by reducing the concentration of power among the largest U.S. financial institutions. But I wouldn't count on it.


*The listing above is skewed in several respects. First, it did not combine Wells Fargo and Wachovia as a single bank, which would have put four U.S. banks in the trillion-plus category. The Federal Reserve, which ranks bank holding companies (as opposed to banks) according to their asset size, shows that the U.S. institutions are appreciably larger. However the larger point, that most of huge financial institutions are based outside the U.S., still holds.

- Advertisement -


- Advertisement -

View Ratings | Rate It

For over 20 years, David has been a banker covering the energy industry for several global banks in New York. Currently, he is working on several journalism projects dealing with corporate and political corruption that, so far, have escaped serious (more...)

Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon Share Author on Social Media   Go To Commenting

The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
Related Topic(s): ; ; , Add Tags

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Fatal Flaws In The Lawsuit Against Fannie Mae Execs, Part 2

Fannie Mae "Accounting Scandal" Discredited In Court

Mortgages, Ed Pinto, And A Vast Conspiracy Of Silence

How Niall Ferguson Invented False Quotes By Paul Krugman

How Paulson's People Colluded With Goldman to Destroy AIG And Get A Backdoor Bailout

Fox News Embraces Cyber-Terrorism to Subvert the Copenhagen Summit