As of the third quarter of 2013, there were fewer banking companies in America than there have ever been since the Federal Deposit Insurance Corporation (FDIC) started keeping track in 1934. The record contraction signals that banking assets are concentrated in fewer institutions, which reinforces concerns that some banks remain “too big to fail.”
The FDIC’s most recent quarterly report found that there are 6,891 banks in the country, down from a peak of over 18,000 in the 1980s. Of the 10,000 banks that disappeared between the 1984 peak and 2011, about one in six collapsed, according to the Wall Street Journal. The rest of that contraction comes from mergers. As the number of companies has shrunk, the size of total banking deposits has grown to a record high.
As the industry has grown more concentrated, its largest companies have grown even larger. The four largest banks in the country — JP Morgan, Bank of America, Citigroup, and Wells Fargo — now hold assets equal to about 47 percent of the entire American economy, up from 43 percent in 2008.
The megabanks have long enjoyed an implicit multi-billion-dollar subsidy thanks to their size. By appearing to be “too big to fail,” the megabanks gain a market advantage — the assumption that they will be bailed out by taxpayers causes other companies and the government to lend them money at cheaper interest rates. The editors of Bloomberg have estimated that the biggest banks get about $83 billion per year in taxpayer subsidies due to the perception that they won’t be allowed to collapse.
Efforts to dismantle that assumption are making progress, though experts disagree on just how much. Some lawmakers have introduced legislation to shrink the biggest banks. Sen. Elizabeth Warren (D-MA) has been a vocal critic of the Obama administration’s efforts to curb too big to fail banks, while various Republicans have muddied the waters by wrongly claiming that reforms designed to prevent bailouts actually guarantee them. The ratings agency Moody’s Investor Services recently downgraded its credit ratings for several giant banks, signaling that its analysts believe that addressing the problem has been successful. But short of breaking up the biggest banks, there is no way to guarantee that the problem is neutralized until one of these giant institutions collapses and provides a trial run for the new systems Congress put in place in 2010.