Big Banks Bigger and Small Banks Fewer -- Thank You Federal Government

The lasting legacy of the federal government's response to the financial crisis in the world of Obama is that the big banks are bigger, more profitable and more powerful than ever and small banks are folding, consolidating and falling by the wayside in startling numbers. First, the question of size. 

FORTUNE -- One third of all business loans this year [in 2013] were made by Bank of America. Wells Fargo funds nearly a quarter of all mortgage loans. And held in the vaults of JPMorgan Chase is $1.3 trillion, which is 12% of our collective cash, including the payrolls of many thousands of companies, or enough to buy 47,636,496,885 of these NFL branded toaster ovens. Thanks for your business!

A lot has changed since the financial crisis. A number of large banks and Wall Street firms have disappeared. There are new regulations in the works meant to limit risky trading and bring derivatives that compounded the financial system's losses into regulated markets. Subprime lending has been coming back recently, but it's still a fraction of what it once was.

But at least one of the widely recognized causes of the financial crisis is not only still around, it has perhaps gotten worse. By every measure I can think of, and I have tried a bunch, the big banks are bigger than they were five years ago, at the dawn of the financial crisis.

The six largest banks in the nation now have 67% of all the assets in the U.S. financial system, according to bank research firm SNL Financial. That amounts to $9.6 trillion, up 37% from five years ago. And the big banks seem to be getting better at acquiring assets all the time. The overall growth of assets in the system in the same time is up just 8%.

The biggest bank in the nation, JPMorgan (JPM), has $2.4 trillion in assets alone -- the size of England's economy. And JPMorgan is seven times larger than the nation's No. 10 bank U.S. Bancorp (USB), which itself has $350 billion in assets -- along the lines of Austria -- and at this point is probably part of the TBTF club as well. Also way up: Profits. The four biggest banks in the U.S. alone, which along with JPMorgan include Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC), made collectively nearly $45 billion in the first six months of the year, nine times what those same banks made five years ago.

Assets have grown more than many other size metrics. But across the board, nearly every measure of the big banks' size is up. In terms of loans, according to FDIC data, 42% of all loans outstanding by U.S. banks come from the five largest. That's up from 38% before the financial crisis. The four biggest banks in the nation employ just over 1 million people. That's up from around 900,000 just before the financial crisis.

And those big banks have less competition. Just over 1,400 banks have disappeared in the past five years. About 485 failed. The rest were merged into other banks.

Even though small banks were not responsible for the financial crisis, they are being regulated out of existence by the Dodd Frank regulatory regime. The Obama administration adores big banks.




http://research.stlouisfed.org/fred2/series/USNUM


The explanation for the sharp and continued downward trend in the number of small banks is the impact of fixes that the Democrats installed, ostensibly, to punish big banks and to protect us from their misdeeds. Here is what is happening instead.

In a period when low interest rates are squeezing small banks, the costs of adhering to new regulations are taking a toll. Executives from at least a half-dozen small banks that have agreed to be acquired in recent months said the increasing regulatory burden was a factor in their decisions.

The executives said the new rules aren't scaled for banks of their size. While the Dodd-Frank financial-overhaul law and other new rules were aimed at reducing the problems caused by big banks, small banks must deal with many of them as well, and the costs don't necessarily get lower as the banks get smaller.

"When they created 'too big to fail,' they also created 'too small to succeed,'" said Dan Baird, chief executive of Capital Funding Group Inc., which last October sold its CFG Community Bank, a Maryland bank with $481 million in assets, to MVB Financial Corp.

When we went up to Kalispell for the annual shareholders meeting of Glacier Bancorp in April the CEO said:

The wave of new regulations continues at a mind boggling pace. Banks had to interpret, implement and train on 16,000 pages of new rules just in 2013 alone. Dodd/Frank is simultaneously increasing the regulatory burden for banks while restricting revenues. We are beginning to see numerous community banks look for strategic partnerships in order to avoid the costs and constraints of complying with the new regulatory environment -- good news for us. 

But not good news for community banks, which are being gobbled up one after another by their larger, more prosperous competitors.

Carry on. Pay no attention. Concentration of power and control in a fortunate few continues to grow. Good luck to all.