Breaking Up Behemoth Banks
posted by Lawrence Cunningham
Thanks to banking industry mistakes and government’s orchestration of its rescue, the country now has ten banks that together command some $10 trillion in assets, roughly equal to nearly 70% of the country’s gross domestic product. Pending legislation would break those up into a total of about 36, each still commanding about $285 billion in assets apiece—larger than the next largest bank is now.
That break up would eliminate the continuing threat to the US economic and political system posed by banks deemed so big that government lavishes trillions in aid to avoid letting them fail—at enormous cost to ordinary citizens and the real economy. It is by far the cleanest and most reliable solution to the manifest havoc massive banks wreak, not addressable by any pending technocratic tinkering like better regulation or capital requirements.
The break-up idea is not as radical as it is controversial, due to foes of ex ante legal constraints on private power. All passage of the legislation would mean is substantially a return to the scale and distribution of the US banking system as of the mid-1990s, when no bank commanded assets exceeding more than a few percent of GDP. In important part, as the lists below suggest, the conglomerate mergers of the past two decades that caused this massive concentration of economic and political power would be reversed.
If so, expect greater competition, with benefits to consumers, savers and investors; more careful risk management by banks and their lenders, given that they’d no longer enjoy a government guarantee against failure; and generally a less unbalanced economic and political environment in the country that massive bank scale has consolidated.
But don’t count on this legislation to pass. As the bailout showed, the forces at the country’s largest banks are far too powerful for Congress and the President to resist easily. They’ll need support from ordinary citizens to fight the megabanks seriously.
Listed below are the largest banks in the country, measured by assets, noting which would have to break up under the legislation—and, for the largest four, some of the old brand names that would be revived in the newly-competitive field.
A. The Largest Four (to be divided into a total of about 21)
1. Bank of America ($2.2 trillion; 16% GDP) [Barnett Bank, Boatmen’s Bancshares, FleetBoston, Montgomery Securities, NationsBank, Robertson Stephens, Security Pacific (plus Merrill Lynch from this period’s bailouts)]
2. JP Morgan Chase ($2 trillion; 14% GDP) [Bank One, Chase Manhattan, Chemical Bank, First Chicago, Hambrecht & Quist, Manufacturer’s Hanover (plus Bear Stearns and Washington Mutual from this period’s bailouts)]
3. Citigroup ($1.85 trillion; 13% GDP) [Commercial Credit, Primerica, Travelers, Salomon Brothers]
4. Wells Fargo ($1.24 trillion; 9% GDP)) [CoreStates, First Interstate, First Union, Norwest (plus Wachovia from this period’s bailouts)]
B. Tier Two: The Next Largest (to be divided into a total of about 9)
5. Goldman Sachs ($850 billion; 6% GDP)
6. Morgan Stanley ($771 billion; 5% GDP)
7. MetLife ($771 billion; 5% GDP)
C. Tier Three (to be divided into a total of about 6)
8. HSBC ($391 billion)
9. Tannus ($369 billion)
10. Barclays ($365 billion)
D. The Next Ten Massive Banks (not needing to be divided)
11. US Bancorp ($281 billion)
12. PNC ($269 billion)
13. BONY/Mellon ($212 billion)
14. Suntrust ($174 billion)
15. GMAC ($172 billion)
16. Capital One ($169 billion)
17. BB&T ($165 billion)
18. State Street ($156 billion)
19. Citizens ($148 billion)
20. TD Bank ($145 billion)
Data: Federal Reserve