Major Banks Now Much Too Big to Fail 30 comments
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A report by David Cho in Friday's Washington Post tells of the great advances now being made in restoring the banking sector and financial markets to their pre-2008 glory.
Banks 'Too Big to Fail' Have Grown Even Bigger
When the credit crisis struck last year, federal regulators pumped tens of billions of dollars into the nation's leading financial institutions because the banks were so big that officials feared their failure would ruin the entire financial system.
Today, the biggest of those banks are even bigger.The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit.
J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.
Now that's a sweet deal - boost your market share in originating what are essentially "no-risk" loans because, either wards of the state Fannie Mae (FNM) and Freddie Mac (FRE) will buy the loans or you'll get bailed out if things again go awry.
A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected.
If you're a big bank, what's not to like about that?
It seems that the lines between the U.S. Government, the Federal Reserve, and the nation's largest banks are becoming even more irreparably blurred.
It's all good - if you're a big bank.
"It is at the top of the list of things that need to be fixed," said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. "It fed the crisis, and it has gotten worse because of the crisis."
Regulators' concerns are twofold: that consumers will wind up with fewer choices for services and that big banks will assume they always have the government's backing if things go wrong. That presumed guarantee means large companies could return to the risky behavior that led to the crisis if they figure federal officials will clean up their mess.
This problem, known as "moral hazard," is partly why government officials are keeping a tight rein on bailed-out banks -- monitoring executive pay, reviewing sales of major divisions -- and it is driving the Obama administration's efforts to create a new regulatory system to prevent another crisis. That plan would impose higher capital standards on large institutions and empower the government to take over a wide range of troubled financial firms to wind down their businesses in an orderly way.
"The dominant public policy imperative motivating reform is to address the moral hazard risk created by what we did, what we had to do in the crisis to save the economy," Treasury Secretary Timothy F. Geithner said in an interview.
The worry for consumers is that the bailouts skewed the financial industry in favor of the big and powerful. Fresh data from the FDIC show that big banks have the ability to borrow more cheaply than their peers because creditors assume these large companies are not at risk of failing. That imbalance could eventually squeeze out smaller competitors. Already, consumers are seeing fewer choices and higher prices for financial services, some senior government officials warn.
The Federal Government has even been so kind as to waive the long-standing anti-trust laws that prohibited JPMorgan (JPM), Bank of America (BAC), and Wells Fargo (WFC) from each holding more than 10 percent of the nation's deposits.
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> jack
There are problems with trying to "regulate" these megabanks. First, they have multiple sets of books. What's hidden in their level 2 and 3 portfolios is a mystery to all but themselves. They can value it as they wish or even make up a number. First priority of regulatory reform should be to put ALL assets and ALL liabilities on the books. No exceptions.
Then there is the problem of size. A company the size of Citi, for example, is functionally inauditable. Heck, a little Madoff scheme eluded the regulators. If there's a forensic accountant out there reading this, I'd like an estimate of what it would take to do a forensic audit of a company the size of Citi. When I was an accounting supervisor with one of the world's biggest companies, my superiors put entries wherever they wanted them to be. They moved stuff around on the balance sheet at will.
Companies this big cannot be regulated. They can hide anything they want in their massive balance sheets.
there a re simply too many people writing gratuitous stuff
a more vigorous selection of quality would be much welcome
RS,London UK
I would add that to the extent this site (SA) has become the Hyde Park of unbridled populist poppycock, it is equally diminished as an exchange of investment ideas and discussion.
On Aug 30 09:40 AM Ferdinand E. Banks wrote:
> Sounds good to me. An attack on the finance market by half-baked
> regulators, politicians and academics is asking for trouble.
Thus although changes are required, I don't think breaking up our banks is the best answer. Seems to me there are both new (and reinstated past) regulations that would negate commission of those errors that lead to the financial crisis.
In our political system where the US supreme court said that "free political speech" can be how much you can pay lobbyists who, in turn, pay politicians, there is little hope that the big banks will be reigned in. I can't think or any politicians who want to give up campaign money. I can recall any bureaucrat who pledged never to work for a big bank.
I will probably buy shares of investment banks simply because I cant think of a way they can loose the game.
I think the one thing that most people miss is that the only thing people are useful for is maintaining the power structure through their labors. Serf and Lord. Read George Orwells stuff or Ayn Rand, or, hell, read history.
Government is power and power is money. Thus, we learn that control of the money is essential to governance and so we shall always have the incestuous relationship between big government and the banks. So, if any of you are deluding yourself that new sweeping regulation will dismantle big banks for smaller ones are living in a delusional world.
see below for list of recent research comments by an analyst who has been quite accurate with his investment researched conclusions
seekingalpha.com/autho...
I still have a small oddlot position of JPM from a recent deferred comp distribution (I retired from Bear Stearns) and have no relationship with Reggie Middleton but have seen his research on the internet and find it to be value added and informative.
Why does "Too Big To Fail" seem to mean "Too Big for Share/Bond Holders to Lose Their Investments"? If we, the taxpayers, are acting as debtors in possession, why don't we simply take possession, fire the management, hire new management to reorganize our business, then do an IPO?
Regulate the banks, BUT enforce the regulations otherwise it is all a joke. AND the Joke is on US.
Not only have the accounting rules been removed that would required the big banks to report massive losses on their "toxic" securities, now the rules are about to change to permit the financial thieves from not having to report embedded losses on their toxic commercial real estate losses.
One of these days, the game will end and it won't be pretty.
"The American Taxpayers are already on the Hook.".
That's how the money system works.
United States Dollars.
They come from United States Taxpayers.
Irregardless.
It's time we address the inherent instability of the fractional-reserve debt-money system. Banks MUST get bigger because banks create ALL of the nation's money as debts that must be paid back with interest. In order to have all that interest money, new money must be created, as new debts.
Which is the job of the banks.
"Grow we must" is more than a saying - it is a mathematical imperative.
We need a new money system, created as equity by the government.
The Money System Common.
As a secondary question: What is this likelihood that you can fine enough people to agree with any measure?
If the regulators did their jobs it wouldnt matter how large each institution was, they would never face bankruptcy! Instead of firing the Firms Mngmt, re-elect new congress, senate and fire these corrupted regulators!!