The first chart shows the core capital ratios in the U.S. banking industry by asset class. Basically, the smaller the bank class the stronger the capital ratio. The second chart shows the net charge-off to loan ratio by bank asset class. Again, the smaller the bank class the better their loan quality.
It’s not the entire banking system that is in crisis. It’s the biggest banks as a class that are not as strong. The largest banks have the lowest capital ratios and the lowest loan quality (when compared to smaller banks as a class. This would not be a big concern expect that the largest banks have dramatically increased their market share in recent years. For example, the top 10 banks in the U.S. hold over 40% of U.S. banking deposits. They held only about 12% in 1994. Allowing the largest banks to consolidate market share was not in itself bad. However, at the same time to allow them to maintain the lowest capital ratios and the lowest loan quality seems irresponsible. It increased the chances of systemic risk if (when) these largest banks got into trouble.
Data source:
FDIC
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The above charts show that FDIC resources have not kept pace with the growth in the U.S. banking industry in recent years. I’m not a fan of burdensome government oversight. However, I am also not a fan of the banking crisis we have today which has lead to even more government involvement (bailouts, public investments, talk of nationalization, a “too big to fail” policy).
Data source:
FDIC
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The above charts show the change from 1994 to 2008 in the distribution of U.S. banking deposits by asset class. As you can see banks in the ”Greater than $10 Billion” asset class now control nearly three-quarters of U.S. banking deposits.
Data source:
FDIC
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The above charts show the extent to which U.S. banking deposits have become increasingly concentrated within a few large banks in recent years. Four words: “too big to fail.” In my book the ability to fail should be a basic human (and corporate) right.
Data source:
FDIC
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The above charts show the extremely high concentration of assets within the U.S. banking industry. The first chart shows the number of banking institutions by asset class as of December 31, 2008. When you combine the last two categories you see that less than 10% of banks have assets of more than $1 billion. Just over 1% of banks fall into the last asset class (banks that have assets over $10 billion).
The second chart shows the percentage of total U.S. banking assets hold by banks within each asset class. For example, banks with more than $10 billion in assets as a class hold nearly 80% of total U.S. banking assets. By looking at both charts you can see that just over 1% of the banks in the U.S. hold almost 80% of total U.S. banking assets. This wasn’t always the case. In fact the concentration of assets within a few large banks has dramatically increased in recent years. The same is true with banking deposits. Tomorrow I will have a chart showing how the concentration of banking deposits has increased since the early 1990’s.
Data Source:
FDIC
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The above chart is the first in a six part series on the U.S. banking industry. In this series I will show how the government allowed a large-scale consolidation within the U.S. banking industry in recent years. This consolidation, and a concentration of banking deposits and assets helped result in a handful of major banks becoming ”too big to fail.” I will also show that at the same time this was occuring the government greatly reduced FDIC resources that regulate the banking industry.
The above chart begins the series by showing clearly how the U.S. banking industry has consolidated since 1993. The chart shows how the total number of U.S. banking institutions has steadily declined as the number of mergers within the banking industry has steadily grown.
Tomorrow I will show just how concentrated assets are within the U.S. banking industry.
Data Source:
FDIC
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