Are banks still too big to fail?
Bloomberg notes that the top banks are as big as ever.
It cites data from the Fed showing that five banks -- JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs -- held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy. That compares with 43 percent five years ago, before the onset of the financial crisis.
Obviously, the top banks remain huge, but does that mean they are still too big to fail. Plenty of people will caustically say as much, but there remains divided opinion. The key really is whether banks could be wound down in the face of another crisis -- another mother of all credit events -- without taxpayer money and harm to the financial markets. The key just might be the living wills that systemically important institutions have been tasked with writing for possible use in an orderly liquidation.
These institutions, which of course include the top banks, face a July 2012 deadline to submit plans that detail how they would wind themselves down if it came to that. The regulations, drafted by the FDIC and Federal Reserve in April, apply to institutions with more than $50 billion in assets globally. Regulators have promised that the plans will ensure comprehensive and coordinated resolution planning in the event that an orderly liquidation is required.
But in a crisis situation, with markets already volatile, can this be done without taxpayer support? There is no way to test this hypothesis in the real world unfortunately. We do hope Dodd-Frank and other regulations have made this scenario less likely.
- here's the article