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WSJ: Top 3 Banks Even Bigger Since 2008 Financial Crisis

WSJ: Top 3 Banks Even Bigger Since 2008 Financial Crisis
(Jakub Krechowicz | Dreamstime)

By    |   Thursday, 22 March 2018 01:41 PM

The 2008 financial crisis exposed the frailties of world’s banking system as Lehman Brothers Holdings Inc. collapsed and major banks begged the U.S. government for bailout money. One of the major complaints about banks was that they had grown too large and too reckless to have so much control over the world economy.

Ten years later, Americans are putting more money into the biggest banks than ever before, The Wall Street Journal reported. The three biggest U.S. banks increased their domestic deposits by $2.4 trillion, or 180 percent, in the past 10 years, exceeding what the top eight banks had in deposits in 2007.

JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo emerged from the crisis bigger than ever after merging with other banks, while consumers continued to put their money into big banks. At the end of 2007, the three banks had 20 percent of U.S. deposits. By the end of 2017, they held 32 percent, or $3.8 trillion, according to the newspaper’s analysis.

Mobile and online banking is helping to drive the growth of the biggest financial companies, as consumers become less dependent on visiting the nearest bank branch to make deposits or withdraw cash.

10% Limit on Deposits

The U.S. government doesn’t allow any bank with at least 10 percent of the nation’s deposits to buy other banks, but that restriction hasn’t hindered the growth of the biggest banks that have attracted more deposits. The average checking account balance at Bank of America has grown to about $7,000 from $2,000 in 2007.

JPMorgan and Bank of America plan to open branches in U.S. cities where they currently don’t have any. Bank of America is expanding into Denver, Indianapolis and other cities. JPMorgan hasn’t named the 15 to 20 new markets it is entering, but analysts say they may include Boston, Philadelphia and Washington, D.C.

Wells Fargo has boosted deposits despite a phantom account scandal and selling customers unnecessary car insurance.

Easy Money Bubble

During the last crisis, the Federal Reserve was blamed for not recognizing the growing risks in the economy, particularly as non-bank lenders approved loans to people with shaky credit histories or no source of income. Those subprime loans were packaged into bond-like investments and sold off to investors, giving the lenders a renewed source of capital for more loans.

Such easy financing helped to drive the housing bubble, which started to deflate in 2006. The Fed raised its target interest rate from 1 percent in 2004 to 5.25 percent two years later, and adjustable-rate mortgages started to re-set at higher rates. Many homeowners who couldn’t refinance at lower rates defaulted on their loans and housing prices collapsed.

Former Fed Chair Janet Yellen this month spoke in an interview at Wharton about the financial crisis and how the regulatory environment has changed in the past 10 years.

“There was great confidence at the time that derivatives were serving to distribute risk to those who could best understand and bear the risk, and that financial firms understood the risks they were taking and had appropriate incentives to manage them,” Yellen said. “The financial crisis showed that all of that confidence was misplaced, and supervision of the largest financial institutions was not what it should have been.”

The Fed didn’t have a broad-based program to monitor the entire financial system for emerging threats until recently, Yellen said. That “shadow banking system” included money market firms, investment banks, non-bank lenders and securitization markets.

After the crisis, the Fed and financial regulators worldwide strengthened supervision, using stress tests and “forward-looking measures of capital adequacy that I think give us much better insight into the risks of the financial system,” she said.

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The 2008 financial crisis exposed the frailties of world's banking system as Lehman Brothers Holdings Inc. collapsed and major banks begged the U.S. government for bailout money. One of the major complaints about banks was that they had grown too large and too reckless to...
banks, jpmorgan, bank of america, wells fargo
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2018-41-22
Thursday, 22 March 2018 01:41 PM
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