Thursday, October 13, 2011

11 Facts You Need to Know About the Nation’s Biggest Banks

Here’s the goods, via ThinkProgress’ Pat Garofalo:

The Occupy Wall Street protests that began in New York City more than three weeks ago have now spread across the country. The choice of Wall Street as the focal point for the protests — as even Federal Reserve Chairman Ben Bernanke said — makes sense due to the big bank malfeasance that led to the Great Recession.

While the Dodd-Frank financial reform law did a lot to ensure that a repeat of the 2008 financial crisis won’t occur — through regulation of derivatives, a new consumer protection agency, and new powers for the government to dismantle failing banks — the biggest banks still have a firm grip on the financial system, even more so than before the 2008 financial crisis.

Here are eleven facts that you need to know about the nation’s biggest banks:

  1. Bank profits are highest since before the recession…: According to the Federal Deposit Insurance Corp., bank profits in the first quarter of this year were “the best for the industry since the $36.8 billion earned in the second quarter of 2007.” JP Morgan Chase is currently pulling in record profits.
  2. …even as the banks plan thousands of layoffs: Banks, including Bank of America, Barclays, Goldman Sachs, and Credit Suisse, are planning to lay off tens of thousands of workers.
  3. Banks make nearly one-third of total corporate profits: The financial sector accounts for about 30 percent of total corporate profits, which is actually downfrom before the financial crisis, when they made closer to 40 percent.
  4. Since 2008, the biggest banks have gotten bigger: Due to the failure of small competitors and mergers facilitated during the 2008 crisis, the nation’s biggest banks — including Bank of America, JP Morgan Chase, and Wells Fargo — are now bigger than they were pre-recession. Pre-crisis, the four biggest banks held 32 percent of total deposits; now they hold nearly 40 percent.
  5. The four biggest banks issue 50 percent of mortgages and 66 percent of credit cards: Bank of America, JP Morgan Chase, Wells Fargo and Citigroup issue one out of every two mortgages and nearly two out of every three credit cards in America.
  6. The 10 biggest banks hold 60 percent of bank assets: In the 1980s, the 10 biggest banks controlled 22 percent of total bank assets. Today, they control 60 percent.
  7. The six biggest banks hold assets equal to 63 percent of the country’s GDP: In 1995, the six biggest banks in the country held assets equal to about 17 percent of the country’s Gross Domestic Product. Now their assets equal 63 percent of GDP.
  8. The five biggest banks hold 95 percent of derivatives: Nearly the entire market in derivatives — the credit instruments that helped blow up some of the nation’s biggest banks as well as mega-insurer AIG — is dominated by just five firms: JP Morgan Chase, Goldman Sachs, Bank of America, Citibank, and Wells Fargo.
  9. Banks cost households nearly $20 trillion in wealth: Almost $20 trillion in wealth was destroyed by the Great Recession, and total family wealth is still down “$12.8 trillion (in 2011 dollars) from June 2007 — its last peak.”
  10. Big banks don’t lend to small businesses: The New Rules Project notes that the country’s 20 biggest banks “devote only 18 percent of their commercial loan portfolios to small business.”
  11. Big banks paid 5,000 bonuses of at least $1 million in 2008: According to the New York Attorney General’s office, “nine of the financial firms that were among the largest recipients of federal bailout money paid about 5,000 of their traders and bankers bonuses of more than $1 million apiece for 2008.”

In the last few decades, regulations on the biggest banks have been systematically eliminated, while those banks engineered more and more ways to both rip off customers and turn ever-more complex trading instruments into ever-higher profits. It makes perfect sense, then, that a movement calling for an economy that works for everyone would center its efforts on an industry that exemplifies the opposite.

While the biggest banks get even bigger and rake in huge profits, the U.S. community-based financial institutions remains at risk.

Since early 2007 there have been 491 bank and credit union failures where the Federal Deposit Insurance Corporation. Banking regulators closed First International Bank in Plano, TX, last month, the 26th bank failure in the third quarter of 2011. Two more banks failed in Minnesota and Missouri last Friday, which brings the total number of U.S. bank failures to 76 so far in 2011. Roughly 11.5 percent of all federally insured banks (865 banks) remain on FDIC's confidential "problem" list. Total assets for the financial institutions that have failed since 2008 now approaches $700 billion.

The FDIC is a United States government corporation created in 1933. It provides deposit insurance which guarantees the safety of checking and savings deposits in member banks. The vast number of bank failures in the Great Depression spurred the United States Congress to create an institution to guarantee deposits held by commercial banks, inspired by the Commonwealth of Massachusetts and its Depositors Insurance Fund (DIF).

The Federal Deposit Insurance Corporation (FDIC) insures deposits in 7,513 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank fails, the agency reimburses customer deposits of up to $250,000 per account.

Though the FDIC increased its deposit insurance fund over the last few quarters, the ongoing bank failures have kept it under pressure. U.S. bank failures through 2015 will drain $19 billion from the FDIC fund for covering losses from shutdowns, the agency said in an October 2011 update of its reserve ratio projections.

The $19 billion figure reported by the FDIC is a decrease from the estimated $23 billion needed to cover bank failures in 2010, reflecting both the slowing rate of bank shutdowns and the impact of assessment increases imposed by the FDIC to bolster the Deposit Insurance Fund. The FDIC fund, pushed into deficit by the wave of failures stemming from the 2007- 2008 mortgage bubble rupture, turned positive as of June 30, 2011 after seven consecutive quarters of negative balances. The fund recovered to post a surplus of $3.9 billion in June, substantially better than the deficit of $1.0 billion in the prior quarter. The positive fund balance seen for the first time in two years was aided by a moderate pace of bank failures and assessment revenue.

While the financials of a few large banks have been stabilizing on the back of an slow and uneven economic recovery, the industry is still on shaky ground. Nagging issues like rock-bottom home prices along with still-high loan defaults and unemployment levels continue to trouble smaller community-based banks and credit unions.

Further, according to a University of Michigan study released last month, the largest U.S. banks that were sheltered by government bailout during the height of financial crisis took even greater credit risk afterward. It’s obvious that these banks had taken such a risky plunge to get higher and quicker returns to brush off the bailout burden at the earliest. But this repeated risk-taking ultimate resulted in further threats to the system. Ultimately, risky loans and market uncertainty aggravated the risk of bank failures even further.

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