9 ms·

All of the rules put in place after 2008 are being ignored; the number of banks in the US pre-2008 financial crisis was about 31k. Now there are close to 3000.

All of the rules put in place after 2008 are being ignored; the number of banks in the US pre-2008 financial crisis was about 31k. Now there are close to 3000. After this wave of mergers, there might be around 1000! And a few will be so large that they can make insane bets, betting on risky and novel new investment vehicles that will (maybe initially) pay off handsomely before ultimately failing dramatically. This will make "too big to fail" look quaint by comparison and the banks will end up owning everything.

Mistletoe 3y ago
Am I too tinfoil hat to think the big 4 planned it like this all along? I guess one could ask why WOULDN’T they have meetings trying to engineer exactly what is happening?
- theseatoms 3y ago
  If I had to guess, it's less so "planned" and more so that the various institutional and regulatory incentives make this sort of outcome extremely likely.
  - mattbrewsbytes 3y ago
    I think this hits the nail on the head. I think after 2008 they setup a system (set of regulations/rules/policies not some group of monocle wearing dudes in a room scheming) where the BigBanks will eat the SmallBanks, the FDIC will insure what they do and some Federal agency will eat the SmallBank failures and then BigBank can swoop in as a "savior" essentially consuming SmallBank but all that is left is the profitable parts at that point. Use a local credit union instead of a bank.
- DonsDiscountGas 3y ago
  That doesn't really explain anything though. Every business is always trying to gain marketshare. The question then is why they are succeeding now and not before. Nobody forced SVB to put all their money into 10-year treasuries, nor did anybody engineer the tech-industry recession we've been going through (JPMC is big but Apple, Microsoft and Amazon are each bigger), both of which contributed to SVBs demise. Also the big banks tried to rescue First Republic a few weeks ago; not impossible that was some weird 4-D chess move but much more likely it was just a bailout that failed. See also: https://en.wikipedia.org/wiki/Hanlon%27s_razor https://en.wikipedia.org/wiki/Hanlon%27s_razor
- mandmandam 3y ago
  Well, to accomplish something like that, they'd have to have hundreds of (past, present, and future) employees, dotted over dozens of institutions (media, regulatory and political). They'd need the tacit permission of the other industries their owners are invested in. And, they'd need tremendous amounts of capital. Plus a history of grand collusion and unethical behavior. And leverage against anyone that might call them out. So... I've got nothing. I will say that failing to investigate this possibility seems naive; as would expecting a genuine investigation.
- govolckurself 3y ago
  [dead]
- smeej 3y ago
  I'm willing to take my downvotes on this, but as someone who works in an industry that has been working for 14 years to set up an alternative to this system, and which feels like it's under systemic, engineered threat at the very same time this is happening, I think your tinfoil hat is stylish, and appropriate for the season and weather.
- 0zemp2c 3y ago
  yes, and now they are "attacking" PacWest, whose stock is plummeting like First Republic its an easy cycle - find a bank you want for nothing, feed bad press through the usual outlets, watch it fall, then watch depositors get spooked, then buy it for nothing First Republic is probably just one of many banks intended to be undermined, trashed, and then sold for nothing and remember all the times First Republic's CEO came out and defended his business as it was collapsing? me neither...makes you wonder...
  - than3 3y ago
    Am I wrong in thinking that all banks should have no exposure to the stock market period? The whole being able to trigger aggregate indebtedness violations through synthetic shares (options), seems like a systemic risk that no ones paying attention to. Also, its hard to say we still have a fractional reserve system when required deposits have been set at 0% since the pandemic. There's no fraction, its 0 unless you change the definition (i.e. Basel III which uses capitalization as deposits).
    - SamReidHughes 3y ago
      What exposure to the stock market are you talking about?
      - than3 3y ago
        Any bank with a ticker on a market. Technically no security on the market is safe from this mechanism. Banks are particularly vulnerable. With a properly timed news drop, shorting, and forcing the market maker to exit delta-hedging (due to volatility) you end up having them create synthetic shares that in addition to the loaned shorted shares push the price downwards (because there will always be more shares since they were created via the contracts and are not constrained by short limits/availability and float). The market maker may even participate to offset losses. Once the capitalization rate falls below a certain threshold you get aggregate indebtedness violations. At which point any loans they might have had create a liquidity event (i.e. frozen), which must be paid back and price levels returned to normal within 30 days (Basel 3), or 2 months (Nasdaq). It creates a spiral which can't be recovered from, they will bleed deposits, and then the regulator will seize them, and sell their assets to one of the survivor banks for pennies on the dollar (with guarantees). Another form of bailout. This is what largely happened with FRC, and now its starting to a lesser degree (a/o last night) other regional banks.
- HWR_14 3y ago
  I think you are too tinfoil hat to think they planned it. They don't need to engineer what is happening, it was obviously going to happen at some point. They could have targeted some banks (active, hard), or they simply could have realized that a percentage would fail when rates went up, so they got in a position to do well picking up the pieces. And then they acquire whatever fails.
pbhjpbhj 3y ago
Financial speculation is zero sum, isn't it? So the fewer banks there are the more each one gets exposed to both sides? Your bank provides services for a person who monopolises some commodity, you have billions to loan out; but all your millions of other customers are hit by the price of that commodity and all deposit less, wiping out any increase in deposits. Doesn't that mean unless they are specialised banks, that they necessarily must lose? Maybe an economist can correct or confirm my instinct here?
- scotty79 3y ago
  > Financial speculation is zero sum, isn't it? Only if you play fair. If you can be bailed out it's no longer zero sum.
- RandomLensman 3y ago
  Why would financial speculation be zero sum (or how do you define financial speculation here)?
- misja111 3y ago
  Some financial speculation is zero sum, other is not. E.g. if a bank takes on a lot of clients with risky mortgages, both risk and possible gains are only on this bank. (Barring possible bail out, contagion risk etc)
wesapien 3y ago
You guys should be flipping cars when bank execs didn't get jail time for the financial crisis
- jrs235 3y ago
  Eh. We still have our entertainment and comforts to distract us. But with the greater and greater divide between the haves and have nots flipping cars might look tame when things change.
- mtlmtlmtlmtl 3y ago
  Well America has plenty of outrage, but they're utterly divided and most that outrage just goes into poopooing the other side, instead of something productive like real demonstrations and protests with a real purpose. Instead we get outrage protests mainly designed for extremist groups to waste their time fighting eachother and playing at civil war.
  - newswasboring 3y ago
    America needs a leader who can inspire people to work with each other even when they don't agree on everything. I am quite sure you can build a significant coalition around financial issues, maybe even bigger than a super majority. But somehow people are not willing to work with each other unless they pass each other's purity tests. Thus, nothing changes and the status quo wins every time.
    - gorbachev 3y ago
      That will never happen in our lifetime. Democrats can't do it, because Republicans will never cooperate with a Democratic Party president. Republicans can't do it, because they will continue to nominate a culture warrior whose only job is to fight wokeness, so they aren't even interested in it. This thing will keep escalating, relatively slowly, until it finally crosses the line and even the Republicans will figure out that maybe they ought to have some accountability. My guess it will take minimum of two generations.
NikolaNovak 3y ago
As an outsider, can you help me put your post in context - is 31k banks posit as good or bad state of things? (it seems an insane state of things to me, with incredible overhead and inefficiency but again, I'm an outsider. I've lived in USA for a while in late 90s and state of banking from consumer perspective in USA seemed a decade behind Canada and Europe, but that was a long long time ago)
- stefncb 3y ago
  I see less banks as being strictly worse. It's the same as with any other company. Yes that's less efficient, but it's the only way to prevent individuals from having too much power. Because almost anyone with that kind of power will eventually give in. Just look at tech companies; I, for one, am not satisfied with the status quo. There are two ways to have a functioning society. One is to have very few very powerful people, and only choose the right leaders. The other is to have very many people with very little power. That's less efficient, but it's also much less risky. We currently run on the first. It's not going well. I'm not aware of a time when we ran on the second. In my mind that's the only way.
Waterluvian 3y ago
Canada has like 40 banks and strong regulation has kept them out of crises like in 2008. What’s the right number of banks per capita?
- tormeh 3y ago
  Easy to keep banks out of crises during good times.
  - digging 3y ago
    That seems a bit backward when banks can so easily be the cause of bad times.
- lowkey 3y ago
  > Canada has like 40 banks and strong regulation has kept them out of crises like in 2008 Canada secretly bailed out their banks to the tune of $114 billion CAD in 2008. If you compare Canada's secret bank bailout to the US equivalent on a per capita basis it looks even worse. [0] The reason we didn't hear about it at the time is that the big 5 Canadian Banks have so much power over the government and the media that they were better able to control the narrative. Concentrating power in the hands of a few banks is a bad idea. [0] https://www.cbc.ca/news/business/banks-got-114b-from-governments-during-recession-1.1145997 https://www.cbc.ca/news/business/banks-got-114b-from-governm...
thehappypm 3y ago
I have trouble following this logic. Monopolies are obviously bad, but, 1000 banks sounds like an extremely diverse ecosystem.
zaphod12 3y ago
Where did you get these numbers? It's wrong and presents a misleading picture of a 10x implosion in 2008. There were never even close to 31k banks in the USA. It peaked at about 14k back in the '80s and has been going down ever since. It did drop precipitously after the 2008 crises, going from around 7K banks to today around 4500 banks, but this is a very far cry from 31k to 3k. https://banks.data.fdic.gov/explore/historical?displayFields=STNAME%2CTOTAL%2CBRANCHES%2CNew_Char&selectedEndDate=2022&selectedReport=CBS&selectedStartDate=1934&selectedStates=0&sortField=YEAR&sortOrder=desc https://banks.data.fdic.gov/explore/historical?displayFields...
alberth 3y ago
Your numbers are wrong. 1974: ~14,000 banks 2008: ~7,000 banks 2023: ~4,000 banks This has been a steady decline since 1974 (not 2008) in the US. https://banks.data.fdic.gov/explore/historical?displayFields=STNAME%2CTOTAL%2CBRANCHES%2CNew_Char&selectedEndDate=2022&selectedReport=CBS&selectedStartDate=1934&selectedStates=0&sortField=YEAR&sortOrder=desc https://banks.data.fdic.gov/explore/historical?displayFields... As a comparison, Canada only has 34 banks. https://en.m.wikipedia.org/wiki/List_of_banks_and_credit_unions_in_Canada#:~:text=There%20are%2034%20domestic%20banks,as%20of%20December%2031st%2C%202022.&text=Owned%20by%20Laurentian%20Bank%20of%20Canada https://en.m.wikipedia.org/wiki/List_of_banks_and_credit_uni.... EDIT: In case anyone is curious, these are the credit union numbers. 1981: ~7,000 credit unions 2010: ~7,000 credit unions 2023: ~5,000 credit unions https://ncua.gov/about/historical-timeline https://ncua.gov/about/historical-timeline
- Naga 3y ago
  More importantly, there are really only five major banks in Canada - RBC, TD, Scotiabank, BMO and CIBC. National Bank is a close #6, but is really only big in Quebec. Those five are the lion's share of the banking industry, especially when you consider that they own a number of the other banks (Scotiabank owns Tangerine, for example). The other banks are niche regional banks or for specific purposes (i.e. Home Bank business is largely selling GICs and lending mortgages, without much else).
  - smnrchrds 3y ago
    The list only includes "bank"s, that are federally-regulated entities. The biggest provider of banking services in Quebec is Desjardins, but it doesn't appear in the list because technically it's not a bank and it is regulated provincially not federally. Also depending on how you want to count it, Desjardins is either one entity or an ensemble of 210 credit unions. Similarly, ATB gets an honourable mention, but other non-bank providers of banking services such as First Calgary Financial or Vancity (both credit unions) are not shown in the list. It's interesting that in the US, even small banking service provides are banks. But in Canada, small ones tend to be provincially regulated entities such as credit unions. It's not that small entities don't exist. They just belong to a different list.
015a 3y ago
All numbers approximate: - Number of banks in the US: 4,844 (69,500 people / bank) - Number of banks in the UK: 365 (184,000 people / bank) - Number of banks in Australia: 95 (272,000 people / bank) - Number of banks in Japan: 199 (628,000 people / bank) Let's cool it with the doomsday talk. Every major economy (except maybe China, but they're weird so not counting them) has 2.5x+ the number of people per bank than the US. The US is the weird one. If you want to look at this from a "return to fundamentals" perspective: the US is only a few hundred years old, and was built on some of the most virgin, rich, plentiful, resourceful land on the entire planet. That fueled 300 years of economic development the likes of which the world has never seen; and the nice thing about growth is that it really helps cover-up bets that were far too risky for any reasonable risk-taker. We're not going to see big banks take on increasingly higher risk over the next decade. In fact, we'll see the opposite. Fewer banks, more regulation, and less risk taking, as the US begins to regress more to the worldwide economic growth rate.

Mistletoe 3y ago

Am I too tinfoil hat to think the big 4 planned it like this all along? I guess one could ask why WOULDN’T they have meetings trying to engineer exactly what is happening?

theseatoms 3y ago
If I had to guess, it's less so "planned" and more so that the various institutional and regulatory incentives make this sort of outcome extremely likely.
- mattbrewsbytes 3y ago
  I think this hits the nail on the head. I think after 2008 they setup a system (set of regulations/rules/policies not some group of monocle wearing dudes in a room scheming) where the BigBanks will eat the SmallBanks, the FDIC will insure what they do and some Federal agency will eat the SmallBank failures and then BigBank can swoop in as a "savior" essentially consuming SmallBank but all that is left is the profitable parts at that point. Use a local credit union instead of a bank.
DonsDiscountGas 3y ago
That doesn't really explain anything though. Every business is always trying to gain marketshare. The question then is why they are succeeding now and not before. Nobody forced SVB to put all their money into 10-year treasuries, nor did anybody engineer the tech-industry recession we've been going through (JPMC is big but Apple, Microsoft and Amazon are each bigger), both of which contributed to SVBs demise. Also the big banks tried to rescue First Republic a few weeks ago; not impossible that was some weird 4-D chess move but much more likely it was just a bailout that failed. See also: https://en.wikipedia.org/wiki/Hanlon%27s_razor https://en.wikipedia.org/wiki/Hanlon%27s_razor
mandmandam 3y ago
Well, to accomplish something like that, they'd have to have hundreds of (past, present, and future) employees, dotted over dozens of institutions (media, regulatory and political). They'd need the tacit permission of the other industries their owners are invested in. And, they'd need tremendous amounts of capital. Plus a history of grand collusion and unethical behavior. And leverage against anyone that might call them out. So... I've got nothing. I will say that failing to investigate this possibility seems naive; as would expecting a genuine investigation.
govolckurself 3y ago
[dead]
smeej 3y ago
I'm willing to take my downvotes on this, but as someone who works in an industry that has been working for 14 years to set up an alternative to this system, and which feels like it's under systemic, engineered threat at the very same time this is happening, I think your tinfoil hat is stylish, and appropriate for the season and weather.
0zemp2c 3y ago
yes, and now they are "attacking" PacWest, whose stock is plummeting like First Republic its an easy cycle - find a bank you want for nothing, feed bad press through the usual outlets, watch it fall, then watch depositors get spooked, then buy it for nothing First Republic is probably just one of many banks intended to be undermined, trashed, and then sold for nothing and remember all the times First Republic's CEO came out and defended his business as it was collapsing? me neither...makes you wonder...
- than3 3y ago
  Am I wrong in thinking that all banks should have no exposure to the stock market period? The whole being able to trigger aggregate indebtedness violations through synthetic shares (options), seems like a systemic risk that no ones paying attention to. Also, its hard to say we still have a fractional reserve system when required deposits have been set at 0% since the pandemic. There's no fraction, its 0 unless you change the definition (i.e. Basel III which uses capitalization as deposits).
  - SamReidHughes 3y ago
    What exposure to the stock market are you talking about?
    - than3 3y ago
      Any bank with a ticker on a market. Technically no security on the market is safe from this mechanism. Banks are particularly vulnerable. With a properly timed news drop, shorting, and forcing the market maker to exit delta-hedging (due to volatility) you end up having them create synthetic shares that in addition to the loaned shorted shares push the price downwards (because there will always be more shares since they were created via the contracts and are not constrained by short limits/availability and float). The market maker may even participate to offset losses. Once the capitalization rate falls below a certain threshold you get aggregate indebtedness violations. At which point any loans they might have had create a liquidity event (i.e. frozen), which must be paid back and price levels returned to normal within 30 days (Basel 3), or 2 months (Nasdaq). It creates a spiral which can't be recovered from, they will bleed deposits, and then the regulator will seize them, and sell their assets to one of the survivor banks for pennies on the dollar (with guarantees). Another form of bailout. This is what largely happened with FRC, and now its starting to a lesser degree (a/o last night) other regional banks.
HWR_14 3y ago
I think you are too tinfoil hat to think they planned it. They don't need to engineer what is happening, it was obviously going to happen at some point. They could have targeted some banks (active, hard), or they simply could have realized that a percentage would fail when rates went up, so they got in a position to do well picking up the pieces. And then they acquire whatever fails.

pbhjpbhj 3y ago

Financial speculation is zero sum, isn't it? So the fewer banks there are the more each one gets exposed to both sides? Your bank provides services for a person who monopolises some commodity, you have billions to loan out; but all your millions of other customers are hit by the price of that commodity and all deposit less, wiping out any increase in deposits. Doesn't that mean unless they are specialised banks, that they necessarily must lose? Maybe an economist can correct or confirm my instinct here?

scotty79 3y ago
> Financial speculation is zero sum, isn't it? Only if you play fair. If you can be bailed out it's no longer zero sum.
RandomLensman 3y ago
Why would financial speculation be zero sum (or how do you define financial speculation here)?
misja111 3y ago
Some financial speculation is zero sum, other is not. E.g. if a bank takes on a lot of clients with risky mortgages, both risk and possible gains are only on this bank. (Barring possible bail out, contagion risk etc)

wesapien 3y ago

You guys should be flipping cars when bank execs didn't get jail time for the financial crisis

jrs235 3y ago
Eh. We still have our entertainment and comforts to distract us. But with the greater and greater divide between the haves and have nots flipping cars might look tame when things change.
mtlmtlmtlmtl 3y ago
Well America has plenty of outrage, but they're utterly divided and most that outrage just goes into poopooing the other side, instead of something productive like real demonstrations and protests with a real purpose. Instead we get outrage protests mainly designed for extremist groups to waste their time fighting eachother and playing at civil war.
- newswasboring 3y ago
  America needs a leader who can inspire people to work with each other even when they don't agree on everything. I am quite sure you can build a significant coalition around financial issues, maybe even bigger than a super majority. But somehow people are not willing to work with each other unless they pass each other's purity tests. Thus, nothing changes and the status quo wins every time.
  - gorbachev 3y ago
    That will never happen in our lifetime. Democrats can't do it, because Republicans will never cooperate with a Democratic Party president. Republicans can't do it, because they will continue to nominate a culture warrior whose only job is to fight wokeness, so they aren't even interested in it. This thing will keep escalating, relatively slowly, until it finally crosses the line and even the Republicans will figure out that maybe they ought to have some accountability. My guess it will take minimum of two generations.

NikolaNovak 3y ago

As an outsider, can you help me put your post in context - is 31k banks posit as good or bad state of things? (it seems an insane state of things to me, with incredible overhead and inefficiency but again, I'm an outsider. I've lived in USA for a while in late 90s and state of banking from consumer perspective in USA seemed a decade behind Canada and Europe, but that was a long long time ago)

stefncb 3y ago
I see less banks as being strictly worse. It's the same as with any other company. Yes that's less efficient, but it's the only way to prevent individuals from having too much power. Because almost anyone with that kind of power will eventually give in. Just look at tech companies; I, for one, am not satisfied with the status quo. There are two ways to have a functioning society. One is to have very few very powerful people, and only choose the right leaders. The other is to have very many people with very little power. That's less efficient, but it's also much less risky. We currently run on the first. It's not going well. I'm not aware of a time when we ran on the second. In my mind that's the only way.

Waterluvian 3y ago

Canada has like 40 banks and strong regulation has kept them out of crises like in 2008. What’s the right number of banks per capita?

tormeh 3y ago
Easy to keep banks out of crises during good times.
- digging 3y ago
  That seems a bit backward when banks can so easily be the cause of bad times.
lowkey 3y ago
> Canada has like 40 banks and strong regulation has kept them out of crises like in 2008 Canada secretly bailed out their banks to the tune of $114 billion CAD in 2008. If you compare Canada's secret bank bailout to the US equivalent on a per capita basis it looks even worse. [0] The reason we didn't hear about it at the time is that the big 5 Canadian Banks have so much power over the government and the media that they were better able to control the narrative. Concentrating power in the hands of a few banks is a bad idea. [0] https://www.cbc.ca/news/business/banks-got-114b-from-governments-during-recession-1.1145997 https://www.cbc.ca/news/business/banks-got-114b-from-governm...

thehappypm 3y ago

I have trouble following this logic. Monopolies are obviously bad, but, 1000 banks sounds like an extremely diverse ecosystem.

zaphod12 3y ago

Where did you get these numbers? It's wrong and presents a misleading picture of a 10x implosion in 2008. There were never even close to 31k banks in the USA. It peaked at about 14k back in the '80s and has been going down ever since. It did drop precipitously after the 2008 crises, going from around 7K banks to today around 4500 banks, but this is a very far cry from 31k to 3k. https://banks.data.fdic.gov/explore/historical?displayFields=STNAME%2CTOTAL%2CBRANCHES%2CNew_Char&selectedEndDate=2022&selectedReport=CBS&selectedStartDate=1934&selectedStates=0&sortField=YEAR&sortOrder=desc https://banks.data.fdic.gov/explore/historical?displayFields...

alberth 3y ago

Your numbers are wrong. 1974: ~14,000 banks 2008: ~7,000 banks 2023: ~4,000 banks This has been a steady decline since 1974 (not 2008) in the US. https://banks.data.fdic.gov/explore/historical?displayFields=STNAME%2CTOTAL%2CBRANCHES%2CNew_Char&selectedEndDate=2022&selectedReport=CBS&selectedStartDate=1934&selectedStates=0&sortField=YEAR&sortOrder=desc https://banks.data.fdic.gov/explore/historical?displayFields... As a comparison, Canada only has 34 banks. https://en.m.wikipedia.org/wiki/List_of_banks_and_credit_unions_in_Canada#:~:text=There%20are%2034%20domestic%20banks,as%20of%20December%2031st%2C%202022.&text=Owned%20by%20Laurentian%20Bank%20of%20Canada https://en.m.wikipedia.org/wiki/List_of_banks_and_credit_uni.... EDIT: In case anyone is curious, these are the credit union numbers. 1981: ~7,000 credit unions 2010: ~7,000 credit unions 2023: ~5,000 credit unions https://ncua.gov/about/historical-timeline https://ncua.gov/about/historical-timeline

Naga 3y ago
More importantly, there are really only five major banks in Canada - RBC, TD, Scotiabank, BMO and CIBC. National Bank is a close #6, but is really only big in Quebec. Those five are the lion's share of the banking industry, especially when you consider that they own a number of the other banks (Scotiabank owns Tangerine, for example). The other banks are niche regional banks or for specific purposes (i.e. Home Bank business is largely selling GICs and lending mortgages, without much else).
- smnrchrds 3y ago
  The list only includes "bank"s, that are federally-regulated entities. The biggest provider of banking services in Quebec is Desjardins, but it doesn't appear in the list because technically it's not a bank and it is regulated provincially not federally. Also depending on how you want to count it, Desjardins is either one entity or an ensemble of 210 credit unions. Similarly, ATB gets an honourable mention, but other non-bank providers of banking services such as First Calgary Financial or Vancity (both credit unions) are not shown in the list. It's interesting that in the US, even small banking service provides are banks. But in Canada, small ones tend to be provincially regulated entities such as credit unions. It's not that small entities don't exist. They just belong to a different list.

015a 3y ago

All numbers approximate: - Number of banks in the US: 4,844 (69,500 people / bank) - Number of banks in the UK: 365 (184,000 people / bank) - Number of banks in Australia: 95 (272,000 people / bank) - Number of banks in Japan: 199 (628,000 people / bank) Let's cool it with the doomsday talk. Every major economy (except maybe China, but they're weird so not counting them) has 2.5x+ the number of people per bank than the US. The US is the weird one. If you want to look at this from a "return to fundamentals" perspective: the US is only a few hundred years old, and was built on some of the most virgin, rich, plentiful, resourceful land on the entire planet. That fueled 300 years of economic development the likes of which the world has never seen; and the nice thing about growth is that it really helps cover-up bets that were far too risky for any reasonable risk-taker. We're not going to see big banks take on increasingly higher risk over the next decade. In fact, we'll see the opposite. Fewer banks, more regulation, and less risk taking, as the US begins to regress more to the worldwide economic growth rate.