Too big to exist: Six banks hold assets in excess of 63% of the U.S. Gross Domestic Product

from Bill Moyers' Journal:



April 16, 2010

The White House and Democrats in Congress have begun pushing in earnest for a package of financial reforms. But will it be enough to stop Wall Street from causing another meltdown?

To find out what real financial reform needs to look like, Bill Moyers turns to Simon Johnson and James Kwak, the co-authors of 13 BANKERS: THE WALL STREET TAKEOVER AND THE NEXT FINANCIAL MELTDOWN.

The problem, according to Kwak, is that the legislation currently doesn't address the central problem of the crisis, that America's banks have grown 'too big to fail.' In fact, the problem has gotten worse, with just six banks holding assets in excess of 63% of the U.S. Gross Domestic Product. Kwak explains that the crisis actually made the surviving banks more powerful, "I think what's remarkable is that it used to be maybe eight or nine banks. But what's happened over the last two years, as Simon is saying, is that these banks have gotten bigger, because they've bought each other. They've become more powerful. And they have an even stronger market position in some key markets like credit cards, mortgages, equity underwriting, and derivatives."

Johnson argues that for reform to work, policy makers and regulators must reject the belief that Wall Street knows what's its doing, that its interests are always aligned with the nation as a whole, "The idea that we need Wall Street with its current structure — and a disproportionate economic power that implies — to somehow make this economy work and drive entrepreneurship, that idea is nonsense. This is why we wrote the book, all right? There's plenty of evidence on this issue. We go through it. If you want a faith based economy in this regard, you can disregard the evidence."

Senator Brown and the 'Volcker Rule'

Johnson and Kwak believe Congress should pass a law capping the size of the banks, to keep them from becoming so large that their failure threatens the world economy. This approach has been dubbed the 'Volcker Rule,' after Paul Volcker, the well-respected former Federal Reserve chairman who has pushed hard for its inclusion. Senator Sherrod Brown from Ohio has introduced an amendment to the bill that would do just that, reading in part that, "No bank holding company may possess non-deposit liabilities exceeding 3 percent of the annual gross domestic product of the United States."


The Six Big Banks

The names of the six banking behemoths are no doubt familiar to most Americans. The four largest by assets — Bank of America, JPMorgan Chase, Wells Fargo and Citigroup — hold 39 percent of American's deposits.

The six biggest commercial banks by deposit:
Bank of America, $817.9 billion
JPMorgan Chase Bank $618.1 billion
Wachovia Bank $394.2 billion
Wells Fargo Bank $325.4 billion
Citibank $265.9 billion
U.S. Bank $151.9 billion

Source: FDIC ..............(more)

The complete piece and a link to watch the program are at: http://www.pbs.org/moyers/journal/04162010/profile.html

A serious question about any "too big to fail". Does the government swoop in and cease all assets and then sell off the pieces? Or do you have some other plan? Then there's the little problem of a paid-for Supreme Court...surely eager to step in and rule against anything that appears to be such a take-over (along with the many years in court such a case will take).

So what's the plan? I'm all for breaking them up, but how is it done without a long legal battle or the risk of the company purposely tanking and taking both savings and jobs with it...

They will spin off assets and subsidiaries.

Far more profitable to do it themselves than be in violation of the law and have the govt do it for them.

For example Wells Fargo would likes break itself up into 4 companies:
bank holding company (traditional bank, deposits, checking etc)
Financial Services company
mortgage originator
commercial bank (mergers & acquisitions work)

If Wells Fargo does it itself each current wells fargo share would become 1 share of each of the new companies. Shareholder value is protected. If they wait and the govt does it by force billions in shareholder value will be lost. No bank is going to try and call that bluff.

A noble effort by President Carter to do as you say...and then we ended up with regional "too big to fails" that eventually merged back into a bigger corporate than before.

I do agree that I'd prefer the companies to break themselves up but I am the ultimate cynic as the power of the lobbyist and the loophole will find a way to prolong any such break-up...or go to court and try to slow walk the process for years. This mess won't be easy to contain...and in the current political climate, I'm grateful we're seeing some reform.

AT&T breakup would have worked if Congress hasn't looked the other way as they reassmbled themsleves into new super corporations.

Still initially it likely will be far less chaotic to simply have banks come up with plans to divest themselves of excess assets, subsidiaries, holding, etc.

Since no two banks are identical each bank likely needs to be split in different ways. Having Congress do it would be a recipe for disaster.

Still Congress needs to be the stick: "break yourselves up to comply with new regulations or we will and you won't like the outcome".

Go here and read the transcript, or watch the video:
http://www.pbs.org/moyers/journal/04162010/transcript1.html

Basically, what they said was set a cap of $100Billion Dollars, and let the banks themselves decided how to meet the cap.

But, they never applied it to the finanical institutions.

So, the Captains of Industry became bankers, and now they control the pursestrings of Congress, not the House of Representatives.

Excellent article.
Thanks for bringing it to our attention.

Another excellent show.
Examined the issue with more depth than just the soundbytes.
No coverage of Teabaggers, Sarah Palin, Tiger Woods, or Volcanoes.

Thanks for posting this.
I would have if you hadn't.
What has happened to DU? :shrug:
Watching and commenting on Bill Moyers used to be a general collective activity on DU.
Now, he barely gets a mention and a handful of Recs.

Oh Well.
His show is ending on April 30th, and I will grieve.
One of the last examples of Journalism, and In Depth Coverage will be gone,
then it will be Sarah Palin, Teabagers, and the latest/hottest diversions 24/7,
and superficial, soundbyte only, Soap Opera "news" will reign supreme.

K&R

I think it's safe to say we have entered a strange phase of serfdom here. So many toys so little life.

I said that the ones with the biggest pull would gobble up the others and become even bigger and stronger than before.

After all, it worked during the first great depression- why not the second? Planned, timed, done efficiently.

I wonder how much money was made by the people who executed the plan?