US “Too-Big-To-Fail” Banks Now Bigger Than Before Financial Crisis
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The United States’ five largest banks, who have been deemed as “too big to fail” by some analysts, are now bigger than they’ve ever been before, according to a report by Bloomberg on Monday.
The United States’ five largest banks, who have been deemed as “too big to fail” by some analysts, are now bigger than they’ve ever been before, according to a report by Bloomberg on Monday.
JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, Wells Fargo & Co, and Goldman Sachs Groups Inc were said to have had $8.5 trillion in total assets at the end of 2011 – equal to 56 percent of the U.S. economy and an increase from just 43 percent of U.S. output just five years earlier.
Compared to a decade ago, the Big Five banks were also nearly twice as large as they were relative to the U.S. economy, sparking fears that another huge, and potentially damaging, bailout would be necessary if the financial system experienced trouble once again.
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[quote]“Market participants believe that nothing has changed, that too-big-to-fail is fully intact,” noted former president of the Federal Reserve Bank of Minneapolis, Gary Stern.[/quote]Some economists, such as Simon Johnson for instance, have also blamed “a lack of leadership at Treasury and the White House, for failing to live up to a promise to “prevent the further consolidation of our financial system.” Back in 2010, President Barack Obama had vowed to eliminate the danger of financial institutions becoming “too big to fail”, and had said that taxpayers would suffer if they were “served by a financial system that compromises just a few massive firms.”
But the Obama administration now say that strengthening, and introducing safeguards to, the financial system would be far more effective in preventing another financial crisis, as compared to breaking up the financial institutions.
Neil Barofsky, the Treasury’s former special inspector general for the Troubled Asset Relief Program, called the idea of winding down institutions with more than $2 trillion in assets “completely unrealistic.”
Treasury Secretary Timothy Geithner also remarked that U.S. financial system was “significantly stronger than it was before the crisis,” with new regulations – such as tougher capital and liquidity requirements that limit risk-taking by the biggest banks – able to head off a crisis in the future.
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“We’re a much stronger company than we were heading into the crisis,” said Jerry Dubrowski, a Bank of America spokesman. JPMorgan’s CEO Jamie Dimon also boasted of a “fortress balance sheet” at his company on April 13.
Still, some analysts remain unconvinced. Harvey Rosenblum, head of the Federal Reserve Bank of Dallas’s research department, said that the financial institutions “will continue posing a clear and present danger to the U.S. economy…if allowed to remain unchecked.”
Richard Spillenkothen, the Fed’s director of banking supervision and regulation from 1991 to 2006, also said that while regulators were moving in the right direction, it was unclear whether the new regulations would be completely effective.
[quote]“We’ve made progress. I don’t think we’ve totally resolved it,” said Spillenkothen. “The proof will be in the next crisis.”[/quote]
