Thursday, 20 November 2014

Paying Lip Service to "Too Big To Fail"

As bank assets continue to hit new highs on a quarterly basis, fueled by money supply growth and the various QE programs, the number of banks continues to slide.

Compared to Q2 2008, there are today (as of Q3 2014) 1,501, or 21.0%, fewer banks operating in the U.S. During the same period, total assets for all banks operating in the U.S. surged by some $3.8 trillion to $14.8 trillion, an increase of 34.7%. As a result, total assets for each bank has increased 70.6% on average during the Q2 2008 to Q3 2014 period.

The above development is not a new trend however as it has been ongoing for at least the last 30 years.

The observant reader would perhaps wonder how this is possible as "too big too fail" (TBTF) has been a recurring item on the regulators agenda. As the Fed will naturally bail out large banks next time around as well (remember that the Federal Reserve banks are owned by the member banks, meaning the banks own the money printing press located in the trading room at the New York Federal Reserve Bank), one plausible conclusion seems to be that regulators are only paying lip service to this "problem". 

TBTF is, by the way, not a problem at all: just let them fail and let new investors pick up the wrecks. The real problem is fractional reserve banks operating with very little capital and an explicit bail-out put option, courtesy of the Fed. 


One Key Reason Banks Will Continue to Merge and Its Implications

U.S. Banks Are Now Operating With 100% Reserves - Is Full-Reserve Banking The Next Step?