Already, the biggest banks in the U.S. are huge. The largest 0.2 percent of institutions — just 12 mega-banks — control 69 percent of total bank assets. The 20 biggest banks hold assets equal to 84.5 percent of the nation’s entire economic output.
And if the U.S. accounted for bank assets (and risk) in the same way that European countries do, the problem would look even worse:
U.S. accounting rules allow banks to record a smaller portion of their derivatives than European peers and keep most mortgage-linked bonds off their books. That can underestimate the risks firms face and affect how much capital they need.
Using international standards for derivatives and consolidating mortgage securitizations, JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. would double in assets, while Citigroup Inc. would jump 60 percent, third- quarter data show. JPMorgan would swell to $4.5 trillion from $2.3 trillion, leapfrogging London-based HSBC Holdings Plc and Deutsche Bank AG, each with about $2.7 trillion.
JPMorgan, Bank of America and Citigroup would become the world’s three largest banks and Wells Fargo the sixth-biggest. Their combined assets of $14.7 trillion would equal 93 percent of U.S. gross domestic product last year, the data show. Total assets of the country’s banking system would be 170 percent of economic output, still lower than 326 percent for Germany.
Several members of Congress, from both sides of the aisle, have wondered recently why the biggest banks aren’t being broken up, since they’re “too big to fail,” “too big to jail,” and even “too big for trial.” “Glass-Steagall [which separated commercial and investment banking] was put in place in 1933 to prevent exactly what happened to us. It was in place, I think for approximately 66 years, until it was repealed,” noted Sen. Joe Manchin (D-WV) last week. “If it worked so well for so many years why do you all not believe that it’s something we should return to or look at?”
As Demos noted in a recent report, the financial sector sucks $635 billion out of the economy every year that could otherwise go to more productive uses, while creating behemoths that put the entire economy at risk. “These banks are not just too big to fail, they’re too big to manage,” said Sen. Sherrod Brown (D-OH). “I think these banks will be stronger and healthier and probably more profitable if they’re smaller.”