Monday, January 17, 2011
How big is too big when it comes to banks? Maybe when a mere half dozen institutions are worth more than 60% of the American economy.
The latest financial data from the third quarter of last year shows the assets of the six largest banks—JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley—were worth 64% of the gross domestic product. Fifteen years ago, these banks represented only 17% of GDP.
JPMorgan Chase alone controls 46% of all bank deposits in the U.S. Here is the approximate asset value of each of the Big 6 Banks:
· JPMorgan Chase--$2 trillion
· Bank of America--$2 trillion
· Citigroup--$2 trillion
· Well Fargo--$1 trillion
· Goldman Sachs--$880 million
· Morgan Stanley--$820 million.
Neil Barofsky, the special inspector general put in charge of monitoring the 2008 bailout of Wall Street, wrote in his latest report that the government needs to consider letting too-big-to-fail banks suffer some pain, unless the nation wants to deal with another financial crisis in the future.
In addressing the $20 billion government rescue of Citigroup, Barofsky said that “unless and until institutions like Citigroup can be left to suffer the full consequences of their own folly, the prospect of more bailouts will potentially fuel more bad behavior with potentially disastrous results.”
If the collapse of any of the Big 6 Banks would cause severe damage to the U.S. economy, then the executives of these banks know that if they pursue high-risk, high-profit investments and fail, the government will be there to save them. In the words of economist Eugene Fama, this “is not capitalism. Capitalism says, you perform poorly, you fail.”
-Noel Brinkerhoff, David Wallechinsky
The Bill Daley Problem (by Simon Johnson, Baseline Scenario)
TARP Watchdog Sounds Alarm About “Too Big To Fail” Banks (by Julie Vorman, Center for Public Integrity)
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