Also "Even bigger to fail"
Banks were “too big to fail” before the 2008 crisis. Do you know that those same banks are even bigger today?
According to data compiled by Capital IQ, JP Morgan had assets of $ 1.3 trillion before the collapse, it now has $ 2.3 trillion. BofA went from $ 1.4 trillion to $ 2.2 trillion, Citi from $ 1.8 trillion to $ 1.9 trillion, and Wells Fargo from $ 0.5 trillion to $ 1.3 trillion.
These four banks have the equivalent of more than half of the total output of the US economy of $ 14.4 trillion! That is too risky for the fiscal health of the country.
The United States government had no choice but to bail out the banks. If they hadn’t, the economic catastrophe in this country probably would have been at least as bad as the Great Depression. Sometimes you can learn from history. Why aren’t we learning from this recent painful history by allowing these banks to grow larger than they were before the 2008 crash?
JP Morgan consumed Bear Stearns and Washington Mutual. Bank of America gobbled up Merrill Lynch and Countrywide. Wells Fargo picked up Wachovia. Citibank was in such a difficult situation in 2008 that they were not in a position to acquire any of the troubled financial firms.
So what happens when one of these mega finance teams gets into trouble the next time? Most likely it is exactly the same as last time, a government bailout. To be fair, these institutions are much better capitalized than in the run-up to the collapse. One could argue that oversight is better now, although after what happened to MF Global recently, that hope seems overly optimistic.
The fact is, these banks are at the center of the financial lives of millions of Americans and, once again, they are “too big to fail” because the repercussions of bankruptcy would be devastating.
By all accounts, the probability of bankruptcy for any of these institutions is extremely low, but should we allow a low probability scenario to remain in play? When the financial engine of the world’s largest economy is at stake, it seems the answer should be a resounding “no.”
While the prospect of a megabank bankruptcy is highly unlikely, there is a much more likely outcome. Let’s call it “too big to serve”. That is, too large to effectively serve your customer base. It is a daunting task to merge large corporations. Different corporate cultures, information technology, politics, compensation systems, etc., make these mergers almost doomed from the start.
We have already seen an example of how the arrogance of a megabank can affect the customer experience. Just a few months ago, Bank of America was about to implement a monthly fee for customers using its debit cards. The reaction was swift and furious, prompting the shore to retract its position.
Clients will decide for themselves if their Merrill Lynch experience is better now that it is a Bank of America experience, or if their relationship with Wachovia is better coming from Wells Fargo, or their interactions with Washington Mutual are better now that they are JP Morgan Chase. .
Too big to fail, too big to serve. Either way, “too big” in this case is not good for the country or the customer.