The shrinking number of U.S. banks but growing assets – From 12,000+ in 1990 to roughly 7,000 today. The rise of the too big to fail banking system. Are bank hours conducive to the working and middle class?

Some people have a hard time believing that prior to the Great Depression, there was a point in U.S. history where we had over 20,000 various and diverse banks in the country.  These banks would boom and bust and with no FDIC insurance, placing your money in a bank was a risky proposition.  The Federal Reserve initially was designed to serve as lender of last resort but as time has progressed, it has now been used as a tool to consolidate banking power in the hands of a few.  They say that you should never let a good crisis go unused; the banking elite have decided to use propaganda, lobbyists, and coercion to thin out the number of competing banks in the system.  We are now facing the smallest number of commercial banks in many decades and the trend seems to be accelerating as every Friday a handful of banks are shut down and big banks continue to grow their market share.

The below chart shows this trend:

From 1990 when we had over 12,000 commercial banks to 2009 with approximately 7,000 commercial banks, the contraction over 20 years has been significant.  A 40 percent decrease is large but keep in mind that at the same time, the banking needs of our country have risen.  U.S. GDP in 1990 was $5.8 trillion compared to $14.26 trillion in 2009.  What you have occurring is the consolidation of banking power with the too big to fail.  It is no coincidence that during this time, we have faced two of the biggest bubbles in our history.  During the 1990s we lived through the technology bubble and in the 2000s, we had the legendary housing and credit bubble that has knocked our economy to the mat.  It would be one thing if the financial quality of most Americans improved during this time but it hasn’t.  In fact, over the last decade wages have gone stagnant (negative if you lost your job like millions of others) and we are dealing with high unemployment that is persisting at levels that reflect a minor depression (with a softening name of the Great Recession).

If you think about banking hours, you really can see that banks don’t care much about the working or middle class:

Presumably most Americans work 8 to 5 or 9 to 6, right smack during banking hours.  You would think that banks would have hours that were a bit more flexible but in reality, banks make more money outside of the bank and also now through their investing units and gambling on Wall Street.  The storefront is merely to create an illusion.  Banks have done a good job in this crisis trying to propagate the idea that if no bailouts were given, then all banking in the U.S. would have come to a halt.  This is not entirely true.  There is a solid amount of capital that would have found its way to people but why would anyone lend money when the government is backing up the biggest institutions and not rewarding prudence?  In fact, if we look at the mergers of JP Morgan with WaMu or BofA with Countrywide what we saw was two giant institutions (not necessarily good companies) becoming even bigger and having more access to government money.  Well run smaller banks had no chance.

The banking system has become one giant moral hazard.  If you stand on the outside looking in, you would think the number one criteria of favoritism is merely the size of a bank.  So the incentive isn’t to be prudent with making loans, it is to make as many loans as possible in the shortest amount of time to grow into a too big to fail institution.  This kind of system has created incredible risk in our system and we can see that after many decades, it has harmed our economy immensely.  Does anyone really think things are better because banks have gotten bigger?

And going back to the data we had regarding banking assets.  Let us look at asset growth over the same time that 5,000 commercial banks fell out of the system:

U.S. Banking assets (commercial banks)

1990:                     $2.5 trillion

2009:                     $9.3 trillion

At the time that we lost 40 percent of commercial banks, actual assets increased from $2.5 trillion to $9.3 trillion, nearly quadrupling in the same amount of time.  And yet, the actual overall financial well being for working and middle class Americans has actually fallen.  How is that?  Part of it has to do with the incredible amount of asset inflation caused by the banking sector.  More and more people went into massive debt while banks kept making money off a growing list of fees, charges, and also making large amounts of money on the margin from taking government funds and then lending it out or speculating on Wall Street.  Banks claim that the margin has to do with risk but as we have seen, as long as you reach a certain baking size, the government won’t let you fail so you are at liberty to do whatever you feel is in your best interest even if it hurts the overall economy.

The biggest line item comes from mortgage loans:

Source:  FDIC

64% of securitized assets at commercial banks come from mortgage loans including home equity.  The next big line item is credit cards (22%).  If you really look at it carefully, banks had a deep desire to inflate the housing bubble.  This allowed them to increase the overall size of their asset base while forcing Americans to go deeper and deeper into debt.  The value of a dollar has fallen at the same time and this is no accident:

Let us recap:

-From 1990 to 2009 commercial banks went from over 12,000 to 7,000

-Yet banking assets went from $2.5 trillion to over $9.3 trillion at commercial banks

-Banking has grown and fostered two of the largest asset bubbles in history

In the end, we really need to examine what we expect out of banking for our country and our economy.  It has grown too large and has harmed our economy.  The current incentive system rewards bad performance and not much has changed since the crisis started.  Time to reexamine the system and radically shake it up.

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