Big Banks Dominate U.S. Banking System.

[jotsy]

Just 16 banks account for more than half of the assets in the nation's banking system, new data show.

From the Huffington Post, by Shahien Nasiripour

The banks -- all of which have more than $100 billion in assets -- control nearly 56 percent of all assets in the banking system, according to an analysis of fourth quarter Federal Deposit Insurance Corp. data by Dennis Santiago, CEO and managing director of Institutional Risk Analytics, a California-based consultancy.

The concentration of power among the nation's megabanks is more than double what it was just nine years ago, and has more than tripled since 1995.

The consolidation among banks and the growth of the big ones is of particular concern to policymakers and economists who are pushing to fundamentally reform the nation's broken financial system. Leading voices like Federal Reserve Bank of Kansas City President Thomas M. Hoenig and U.S. Senator Ted Kaufman (D-Del.) want to bust up the megabanks, arguing that the firms played a big role in causing a near-meltdown of the financial system and the subsequent Great Recession. The firms benefit from their size by being implicitly -- if not explicitly -- backed by the U.S. government, giving them a huge advantage over traditional Main Street banks, which harbor no illusions about U.S. taxpayers possibly bailing them out.

The prospect of potential bailouts has allowed these firms to enjoy lower borrowing costs, allowing them to grab more market share and get bigger. In 2008, the firms were all bailed out by taxpayers. Meanwhile, small banks are failing at the fastest rate since the early 1990s.

In 1999, there were eight banks with more than $100 billion in assets, Santiago's analysis shows. They had a combined $2.5 trillion in assets. As of Dec. 31, 2009, there were 16 banks with more than $100 billion in assets. Together, they have about $8 trillion in assets.

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I've tried to ask around here about whether or not the banks are monopolizing, without a whole lot of feed back. Can anyone tell me if big banks are as engaged as they are in foreclosures in order to financially weaken other, smaller institutions who my be holding debt on second mortgages or if that has anything to do with the bank closures, which I believe are at over 40 so far for this year, ahead of last year's bank closure pace.

I thought monopoly was supposed to be a board game and that any real life form of it shouldn't be, yet the applications of this principle is policy on many levels. If I don't like my garbage company, my water or electricity provider, it's tough ta ta for me because none of those businesses are allowed to have competition?

I want to believe in a free enterprise system, especially if it can be weened from the dogmatic chops of capitalistic dominance drooling over a cornered market.

[Donnachaidh]

1. link please? n/t

[jotsy]

2. Nice folks have provided the instructions to do so but it hasn't worked right thus far.

Apologies.

I cut and paste, but it doesn't do the link thing.

[jotsy]

9. Learned this today to honor your request.

[FBaggins]

3. Can you compare this to other industries?

There are thousands of banks in the US. You say that the 16 largest control about half of all assets "in the banking system" (not sure whether that includes credit unions etc).

What percentage of gasoline sales do the top 16 companies control? What percentage of TV news do the top 16 media companies control?

Cell phone companies?
Car companies?
TV manufacturers?
Shipping firms?
Electronics retailers?
Furniture stores?
Airlines?

In MANY industries you can't GET to 16 companies on your list before you're talking about essentially total control.

[frazzled]

4. Isn't it true for Europe, too?

I mean, France has it's BNP and Crédit Agricole, Germany has Deutsche Bank, etc.

[FBaggins]

5. Almost certainly

I think that of the ten largest banks in the world... two are in the US.

[FarCenter]

6. There is no reason why there should be more banks than automobile or airplane companies

Since banks back office operations are mostly information technology and data processing, there are huge economies of scale.

So it is natural that they would consolidate to the extent allowed by anti-trust law.

Typically this is to a few firms. In the case of large airlines, only Boeing and Airbus have the whole market. There are smaller planes by Embraer and Bombardier, etc. but no large ones.

In large jet engines most of the market is controlled by GE, United Technologies, and Rolls Royce.

In other cases such as automobiles, there are a couple dozen manufacturers worldwide, but typically only a few dominant players in any given national market.

Why does anyone imagine that the result of consolidation should be different for banking?

[FBaggins]

7. I disagree.

You'll note that I'm on the other "side" for most of this discussion. It's silly to complain about 16 banks controlling half of the market when there are thousands of options in the market and virtually every other industry is LESS diversified.

However, there aren't many economies of scale at the large end of the market these days.

My grad money&banking professor wrote his PhD thesis on the subject some time in the mid 80s and estimated that economies of scale largely disappear once you get to about 5 billion in assets. Now... that was many years ago and I'm sure that the number is much higher now... but it's nothing like the asset size of today's large banks.

In the case of large airlines, only Boeing and Airbus have the whole market.

That's because the world market for such products is in the thousands. The market can't support a dozen manufacturers. There are hundreds of millions of bank/credit accounts out there (just in the US). There's plenty of room for competition.

There's little need for five bank branches to be within site of one another in some small town (especially in an age where many people never need to visit a branch)... but there's plenty of room for competition.

[FarCenter]

8. There are still economies of scale above $5 billion assets

National advertising campaigns, for example.

If you are marketing a variety of banking products, and have a large enough share of the market, you have more information about creditworthyness of customers than your competitors. You don't have to depend on the credit bureaus.

You can provide more attractive services to customers that travel a lot or have homes in other parts of the country.

The same geograhic scope arguments apply on the corporate banking side to companies doing business internationally.

Being both a major card issuer and a major merchant processor means that a lot of transactions can be processed in house. Same with ACH payments and check processing.

There is already a big gap between the nationals (BofA, JPMC, Wells) and the Regionals. Were it not for the 10% limitation on deposits, I'd expect further consolidation with the nationals buying the major regionals. For example, JPMC still needs a better branch network in the southeast.

[Mind_your_head]

10. 16 banks???? It must be consolidated into ONE! eom