How Big Are the Big Five?

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RBC Royal Bank

Martin Wolf on the bank size question:

Yet it is important not to exaggerate the significance of size alone. One point is that some of the systems that navigated the crisis relatively safely – Canada’s, for example – are dominated by a stable banking oligopoly. Another is that, as happened in the US in the 1930s, the collapse of many small and undiversified banks can be highly destructive. Size matters. But it is certainly not all that matters.

I think it’s not totally clear how to apply the Canadian experience to the United States. Canada’s banks are big relative to Canada, but Canada is small relative to the United States. The largest of the Canadian Big Five, the Royal Bank of Canada, has $655 billion in assets which is much smaller than Bank of America’s $2.2 trillion in assets. On the other hand, RBC’s assets amount to about 50 percent of Canadian GDP whereas BofA is closer to 15 percent. In relative terms, RBC is about the size of America’s top four banks combined. Even the smallest of Canada’s Big Five is bigger in relative terms than Bank of America but we have six banks that are bigger in absolute terms than any Canadian bank.

Thus we arguably have whatever logistical problems stem from asking people to administer very large banks (in which case it’s absolute size that matters) without whatever benefits come from organizing banking as a cozy, protected cartel. Another feature of our system is massive inequality. Bank of America is more than twice as big as the fifth largest bank and we have an enormous quantity of assets under the control of a “long tail” of mid-to-small sized banks. Arguably some consolidation of the lesser players so that there weren’t such enormous gaps between different important institutions would do some good.