This is a hit and run. I am a retired state bank examiner and current banker. Several years ago Congress panicked when they discovered that 8 or 9 of the world’s largest banks were Japanese. The Japanese economy later tanked, but Congress eventually cleared the way for interstate mergers. The years of mergers and consolidations, while having some aspects of vastly improved diversification of asset risks for the balance sheets of the larger banks, carried with it another risk: concentration of banking assets.
Currently, only 10 large banks account for over 50% of the banking system’s assets in the US. So when you have risky behavior by these huge banks during an extended boom period, the inevitable losses from the bust, in this case caused by undisciplined mortgage markets, places the entire banking system at risk because banks have been allowed to become very large. While I fundamentally believe in free markets, banking already is a highly regulated industry, and the risks are just too high to the economic well-being of the country to allow banks to get this large.
As a result, these banks become so large and pose enough risk to the economy and country that they become “too big to fail”. It isn’t just the stockholders that lose when a bank that large goes down. I does a tremendous amount of damage to the economy. As a result, I think these large banks ought to be broken apart and not allowing them to account for more than 1 or 2 percent of the country’s banking assets each. To give you a feel, as of March 2008 Bank of America, JP Morgan Chase and Citi each accounted for more that 10% of the banking assets. Wells Fargo and Wachovia were 4.1% and 5.7% respectively. I don’t think this counts the investment banks like Lehman. This creates a huge amount of risk for us all, which we now all see clearly through the mortgage crisis.
Hard lessons learned after depressions, then forgottten by the next generations.
I worried for a number of years, someone would get bundle of money and start rolling up my industry and I don't like working for giant or extra large corporation.
I know some bank officers that got axed when their bank was gobbled up by a large regional bank from Ohio. They got rid of all the people with local knowledge of the community. I can see why they are in trouble now...
Very interesting comment. Thanks.
only 10 large banks account for over 50% of the banking system’s assets
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It should have been easier for the government to check up on 10 banks than 30. But I guess the bribes were that much bigger also.
Nevertheless, the oversight folks should get a little jail time too.