Too Big to Fail? Make ’em Even Bigger!

Interesting discussion at the Washington Post about the downside of TBTF: As we Bailout more banks, we are creating more behemoths — reducing consumer choice, and feeding ever more Moral Hazard.

Here is David Cho:

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.

Well, that’s only if you go by asset size, fees, depositor base. If we were to go by market cap, well then, the whole group got considerably smaller. But based on every other measure of  bank size, the big got much bigger.

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TBTF BIG

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Back to Cho:

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.

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.

Good stuff . . .

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Source:
Banks ‘Too Big to Fail’ Have Grown Even Bigger
David Cho
Washington Post, August 28, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/08/27/AR2009082704193.html

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