How Big Is “BIG”?

Wolf Richter's picture

Wolf Richter

“Repression” is what Richard Fisher, President of the Dallas Fed, called “the injustice of being held hostage to large financial institutions considered ‘too big to fail.’” He sketched out the destructive impact of these TBTF banks that, as “everyone and their sister knows,” were “at the epicenter” of the financial crisis—“whose owners, managers, and customers believe themselves to be exempt from the processes of bankruptcy and creative destruction.” These banks “capture the financial upside” of their bets but are bailed out when things go wrong, he said, “in violation of one of the basic tenets of market capitalism.”

In his speech, “Ending ‘Too Big to Fail’: A Proposal for Reform Before It’s Too Late,” he offered a “simple” plan that would allow the nation to come to grips with these banks. But in the process, he did something else: he defined BIG.

For example, Dodd-Frank is BIG. Alone its name: Dodd–Frank Wall Street Reform and Consumer Protection Act. The congressional effort to address the nightmare of TBTF “has clearly benefited many lawyers and created new layers of bureaucracy,” Fisher explained. But other than that, it “has made things worse, not better.” It has failed “to constrain” the megabanks’ advantages. “Indeed, given its complexity”—he later called it copious amounts of complexity—“it unwittingly exacerbates them.”

The Act’s “mumbo-jumbo” is spelled out on 848 pages, which “spawned” 8,800 additional pages of proposed regulations, with many more pages of regulations to come. Complying with them would eat up—“conservatively, in my view,” Fisher added—2,260,631 labor hours per year. In other words, Dodd-Frank created 1,130 full-time jobs, assuming they’re working regular hours, not banking hours.

And these 1,130 jobs would be spread over the 5,600 banks that make up the US banking industry. So the burden on each bank wouldn’t be unbearable. But approximately 5,500 of these banks are small to tiny community banks with less than $10 billion in assets. While they make up 98.6% of all banks, they control only 12% of the assets in the banking industry. Another 1.2% of the banks are regional banks with up to $250 billion in assets. These 70 banks hold 19% of the assets in the banking industry. Should any of them fail, it would entail mostly routine “private-sector ownership changes and minimal governmental intervention,” Fisher said.

The rest (0.2% of the banks) are megabanks with assets exceeding $2.3 trillion at the top end. There are 12 of them, and they control 69% of the assets in the industry. But with them, BIG also means complex, inscrutable, and intertwined. When one of them pops, run for the exits--if there are any exits. Due to the “threat they could pose to the financial system and the economy,” Fisher said, they’re considered TBTF.

So how big is BIG? JPMorgan Chase is the largest of Fisher’s “big five” with $2.36 trillion in assets, amounting to 15.7% of GDP. Up from $2.27 trillion a year ago. Getting bigger is their mission. It has $983 billion in “nondeposit liabilities,” or 6.3% of GDP, Fisher pointed out. And it sports a mind-boggling 5,183 subsidiaries in 72 countries!

The other members of the big five: Bank of America with 4,647 subsidiaries in 56 countries; Goldman Sachs with 3,550 subsidiaries in 53 countries, Citigroup with 3,556 subsidiaries in 93 countries; and Morgan Stanely, the baby, with 2,718 subsidiaries in 64 countries. Nondeposit liabilities of the big five amount to 26.3% of GDP.

By contrast, Lehman Brothers was only big, not BIG. In 2007, its total liabilities—not just nondeposit liabilities—amounted to $619 billion. It maintained a mere 209 subsidiaries in 21 countries. Next to the big five, it suffered from an outright lack of complexity. And yet, four years after its collapse, its bankruptcy proceedings are still ongoing.

Which begs the question: exactly how many of JPMorgan Chase’s 5,183 subsidiaries could CEO Jamie Dimon possibly be familiar with? OK, he has people working for him who have people working for them who have a lot of people working for them, and some of them (we hope) might be familiar with some of these subsidiaries and what they’re up to and what they’re hiding in their closets. But how the heck do you manage something like that?

Well, management by TBTF, of course. A new paradigm. Problems no longer matter. TBTF “exerts perverse market discipline on risk-taking activities,” Fisher said, as the “implicit government guarantee” induces unsecured depositors and creditors to “offer their funds at a lower cost to TBTF banks than to mid-sized and regional banks that face the risk of failure.” He called TBTF “an unfair tax upon the American people.”

Alas, Fisher has been up in arms about TBTF since July 2009, without visible effects—other than that the members of the financial cartel have gotten even bigger, even more complex, and even more inscrutable. And Congress isn’t about to change that.

Another powerful cartel, OPEC, however, is keeping a wary eye on Congress. In its January report, OPEC predicts that the US will post the highest oil production increase among non-OPEC states in 2013, while production from some OPEC members is declining—and Congress is playing with a monkey wrench. Read.... Why OPEC Is Worried About The US Congress.

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Oldwood's picture

He who makes the rules wins the game. TBTF is so because government actions, incentivised by lobbyest influence, ensure monopolistic powers. They can borrow money at near zero rates and remain backstopped by the taxpayer. A small business person still pays at minimum 6% to invest in production, that in this economy has poor chances of return, yet is held fully and personally responsible for repayment, including interest. Why in the world would these bankers give up that kind of advantage.

Chuck Walla's picture

Long peak corruption.


Cult of Criminality's picture

Brotherhood of the bell so to speak ?

IamtheREALmario's picture

Maybe Fisher has a conscience and maybe not. What it does tell us is that the Fed governors are perfectly aware of the effect and are accepting it... most likely complicit with it. Doeth Fisher protest too much or is it to assuage a guilty conscience? (I want to say Nah, bankers have no moral or ethical compass. They do their best to exploit others who have morals and ethics and pretending to care is a key tactic.)

If the Fed wants to prove that they have anything other than crocodile tears, they do not have to dismantle TBTF, just prosecute fraud at the top of the bank chain... and take away the banks ability to manipulate markets. But the Fed does not do that. The Fed enables the banks to commit fraud and manipulate markets. Why? Maybe it is because the banks literally own the Fed.

Ghordius's picture

you don't seem aware of how the FED is setup. it's actually a dozen FEDs, and all of them are "plain vanilla" central banks. with one exception: the NY FED, the sadistic queen of them

look up to which one Fisher belongs: Dallas. the "BuBa" of them. The "critical" and "skeptic" FED. The one that publishes lots of damning material

IamtheREALmario's picture

Why would you assume that I do not know how the Fed is set up? It is an odd assumption on your part. My assumption is that the Fed is a political organization above all and that Fed governors and the Chairman are put in place through a "private political process", which has absolutely nothing to do with the legitimate government of the United States (now dead) Republic. For any person to be made a governor and allowed into the inner circle they must have given up their free will long ago.

Orly's picture

There's where you and I differ, Mario.  I have thought about it quite a bit and have come very near the conclusion that these guys aren't evil.  They do work for the Bank and their monkeysphere is populated with unsavory types but overall, I do think that they want to do the right thing for the global economy.

Dr. Bernanke, in a rather smug speech back in the day, said that he could stop inflation in fifteen minutes if it came to that.  He may be right, he may be wrong.  I do know that their intentions on what has come to be called "Keynesian economics" have not worked out exactly as they assumed.

I believe that they are genuinely surprised by this non-turn of events and that has awoken a more sceptical view of how monetary policy can affect a real-world economy.

They're in a world of trouble and they are beginning to catch on pretty quickly.  There are going to be some big, big changes around here, mark my word.

NoDebt's picture

I wonder how many of these TBTF banks would be worth more in pieces than they are as a whole?

Paging Gordon Gekko!  If ever there was a time for your ilk it would be now!

You'll never out-lobby them, of course, but what if there was a real profit motive for shareholds to say "I want more money" and get it done with some good old fashioned greed/profit motive?

Ah, that's just crazy talk.

Ghordius's picture

shareholders? they are scammed, too. the true beneficiaries of any megabanks are their executive employees, thanks to the bonus in options they get (and of course immunity from laws and the revolving doors they get to access)

and the beauty of those options is that by churning the market they can be sold on the wave up - another reason why banks love, love, love choppy markets

q99x2's picture

The Great Repression by bankster occupation.

Boris Alatovkrap's picture

When is too big? Too Big To Jail!

Orly's picture

How big?  It's big.


I predict that the Fed will take Fisher's ball and run with it, pressure the Congress in an unprecedented way and actually come to break up the giant banks.

How big?

One may say it is the key to the fourth turning.


Ghordius's picture

breaking up the banks in portions that aren't too big to fail and too big to prosecute? now this would be a great "fourth turning" solution

and might just expose the rot that is in the other megalocorporations that are too big to be bothered

but remember that America still loves BIG, in all it's forms. the whole concept would require Americans to think "small is beautiful"

difficult - like selling a small hat to a Texan


worth repeating from above:

5,600 banks in the US (btw the eurozone number is about 6'000) of which

5,500 microbanks (with less than $10 billion in assets) control 12% of all assets

70 big banks (with up to $250 billion in assets) control 19% of the assets

12 mega banks with assets exceeding $2.3 trillion control 69% of the assets

twelve CEOs and twelve CFOs who look like they have an idea what their monsters really do. but they can't. it's humanly impossible. they are paid to look as if they were in charge... of your money

because if they fail, it was your money and they are bailed out by your tax money, past, present and future

and all this is without counting the big five that control nearly all derivatives

otto skorzeny's picture

anybody that tries to break up TBTF will find themselves "Swarzed"

Boris Alatovkrap's picture

Is like break up with old girl friend. Is never end pretty. But girl friend is not so pretty, so why is surprise!?