BIGGER BANKS,

RISKIER BANKS
THE POST-BAILOUT CONTINUATION OF A PRE-BAILOUT TREND

NOMI PRINS

JAMES LARDNER

RESEARCH ASSISTANCE: KRISZTINA UGRIN

 -
ABOUT DEMOS

Dēmos is a non-partisan public policy research and advocacy organization. Headquartered in New York
City, Dēmos works with advocates and policymakers around the country in pursuit of four overarching
goals: a more equitable economy; a vibrant and inclusive democracy; an empowered public sector that
works for the common good; and responsible U.S. engagement in an interdependent world.

Dēmos was founded in 2000.

Miles S. Rapoport, President

Tamara Draut, Vice President of Policy & Programs

ABOUT THE AUTHORS

Nomi Prins is a journalist, a regular contributor to the Daily Beast, and a Senior Fellow at Demos. Her lat-
est book is It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall
Street (Wiley, Sep­tember 2009). She is also the author of Other People’s Money: The Corporate Mugging of
America (The New Press, October 2004), a devastating exposé into corporate corruption, political collu-
sion and Wall Street deception. Other People’s Money was chosen as a Best Book of 2004 by The Econo-
mist, Barron’s and The Library Journal. Her book Jacked: How “Conservatives” are Picking your Pocket
(whether you voted for them or not) (Polipoint Press, Sept. 2006) catalogs her travels around the USA; talk-
ing to people about their economic lives: card by card--issue by issue. Before becoming a journalist, Nomi
worked on Wall Street as a managing director at Goldman Sachs, and running the international analytics
group at Bear Stearns in London.

She has appeared internationally on BBC World and BBC Radio and nationally in the U.S. on CNN,
CNBC, MSNBC, ABCNews, CSPAN, Democracy Now, Fox Business News and other TV stations. She
has been featured on dozens of radio shows across the U.S. including CNNRadio, Marketplace Radio, Air
America, NPR, WNYC-AM and regional Pacifica stations. Her articles have appeared in The New York
Times, Fortune, Newsday, Mother Jones, Slate.com, The Guardian UK, The Nation, The American Prospect,
Alternet, The Left Business Observer, LaVanguardia, and other publications.

James Lardner is a Senior Policy Analyst at Dēmos and the co-author, with José García and Cindy Zeldin,
of Up to Our Eyeballs: How Shady Lenders and Failed Economic Policies Are Drowning Americans in Debt.
He is also the co-editor of Inequality Matters: The Growing Economic Divide in America and Its Poisonous
Consequences. As a journalist, he has written for the New York Review of Books, The New Yorker and The
Washington Post, among other publications.

Krisztina Ugrin is a researcher and translator based in Berlin, Germany. Her work has appeared in Moth-
er Jones and The Nation.
BOARD OF DIRECTORS

Current Members Members, Past & On Leave

Stephen Heintz, Board Chair President Barack Obama
President, Rockefeller Brothers Fund
Tom Campbell
Miles Rapoport, President
Juan Figeroa
Mark C. Alexander
Professor of Law, Seton Hall University Robert Franklin

Ben Binswanger Charles Halpern

Chief Operating Officer, The Case Foundation Sara Horowitz
Raj Date Van Jones
Chairman & Executive Director, Cambridge Winter
Eric Liu
Christine Chen
Strategic Alliances USA Spencer Overton

Amy Hanauer Robert Reich

Founding Executive Director, Policy Matters Ohio
David Skaggs
Sang Ji
Linda Tarr-Whelan
Partner, White & Case LLP
Ernest Tollerson
Rev. Janet McCune Edwards
Presbyterian Minister
Affiliations are listed for identification purposes only.
Clarissa Martinez De Castro
Director of Immigration & National Campaigns, As with all Dēmos publications, the views expressed
National Council of La Raza in this report do not necessarily reflect the views of the
Dēmos Board of Trustees.
Arnie Miller
Founder, Isaacson Miller
Wendy Puriefoy
President, Public Education Network
Amelia Warren Tyagi
Co-Founder & EVP/COO, The Business Talent Group
Ruth Wooden
President, Public Agenda

COPYRIGHT

© 2010 Dēmos: A Network for Ideas & Action

TABLE OF CONTENTS

I. Introduction 1

Key Developments Since the Financial Crisis

II. Too Big to Fail Banks are Bigger than Ever 2

III. The Big Banks go Gambling with our Money 4

IV. The Risk Picture Bank by Bank 5

V. Megabanks are Harder to Regulate 11

Conclusion 12

Endnotes 14

Appendix: Bank Mergers and Consolidation 16

I. INTRODUCTION

In recent decades, policymakers and regulators have adopted a bigger-is-better view of the banking
business. The United States had a tradition of small and simple banks with close community ties.
But in the deregulatory atmosphere of the 1980s and ‘90s, official Washington came around to the
industry’s argument for consolidation. In the name of global competitiveness, financial executives
and lobbyists contended, banks had to be not just large
in scale and geographical reach, but also free to engage
...after trillions of dollars in
in the whole gamut of underwriting, trading, and in-
taxpayer funds, cheap loans
surance as well as ordinary banking activities.
and other forms of direct and
indirect support, the biggest
The financial meltdown of late 2008 called that belief
banks are bigger and more
into grave doubt. The crisis was widely blamed on the
complex than ever...
eager promotion by the nation’s biggest banks of over-
complicated, deceptively advertised loans and securi-
ties. Experts and political leaders of both parties deplored the ability of profit-seeking insiders at a
handful of “Too Big to Fail” institutions to bring the financial system to the edge of collapse, neces-
sitating a massive bailout and triggering the worst recession since the 1930s.

Nevertheless, after trillions of dollars in taxpayer funds, cheap loans and other forms of direct and
indirect support, the biggest banks are bigger and more complex than ever; and for all the talk of
newfound caution and tougher regulation, their recent record reveals an undiminished commit-
ment to the kind of risky practices that inflate short-term profits when they go right but hold the
potential to decimate the economy when they go wrong.

Key Developments Since the Financial Crisis:

• Government-sponsored mergers have enabled already ‘too big to fail’ entities such as JP Mor-
gan Chase and Bank of America to expand further, engaging in high-risk transactions with
the confidence of government backing in the event of an emergency.

• In September 2008, the Federal Reserve invoked its emergency powers to anoint the former
investment banks Goldman Sachs and Morgan Stanley as bank holding companies (or BHCs),
allowing them to use federal money and benefits for activities that are inherently riskier than
those of traditional consumer-oriented bank holding companies. More recently, the Fed let
Goldman Sachs and Morgan Stanley become financial holding companies (FHCs), allowing
them to engage in a wider array of more speculative financial activities as designated by the
Gramm-Leach-Bliley Act, with continued federal backing. 1

1
BIGGER BANKS, RISKIER BANKS

• Some of the biggest banks have reported impressive profits in recent quarters. Behind
the appearance of industry recovery, though, lies a pattern of sharply increased trading
revenues and a continued predilection for activities that are far riskier and more volatile
than ordinary banking.

• The biggest banks received the most substantial assistance from the federal government.
Through explicit subsidies (actual guarantees) and implicit subsidies (if the government
is backing the largest banks, investors will, too), they have been encouraged to convert
cheap money into capital for trading purposes.

• The top five financial firms remain the biggest players in the derivatives market. Over
80% of derivatives are controlled by JPM Chase, Bank of America, Goldman Sachs,
Citigroup, and Morgan Stanley, according to a July 2009 tally by Fitch Ratings. These
same institutions account for 96% of the industry’s exposure to credit derivatives, the
risky bets (on how healthy firms and loans really are) that played a pivotal role in the
financial crisis.

• The sheer volume and complexity of these activities is problematic on two levels. In the
first place, massive trading creates dangerous levels of market volatility and fresh oppor-
tunities for insider enrichment. In addition, assets and accounting practices become less
transparent, making it difficult for regulators to detect the kind of behavior that could lead
to another ruinous financial bubble – and calls for another taxpayer-funded bailout.

II. TOO BIG TO FAIL BANKS ARE BIGGER THAN EVER

Asset Concentration Deposit Concentration

Total Assets Top 5 All Commercial Bank Assets Domestic Deposits Top 5 All Commercial Bank Deposits
held in Domestic Offices

7,000
12,000 6,000
10,000 5,000
8,000 4,000
6,000 3,000
$ in Billions

$ in Billions

4,000 2,000
2,000 1,000
0 0
1998 2004 2008 2009 1998 2004 2008 2009

SOURCE: Federal Deposit Insurance Corporation

 Concentration of Deposits 2009 Concentration of Deposits 1998
5.2%
6990 of 6995 4.4% 8769 of 8774
Commercial Banks 4.2% Commercial Banks

13.2% Bank of America 3.4% Nations Bank

incl. Merril Lynch 1.3%
9.3%
JP Morgan First Union
Chase Bank National Bank
60.3% 4.0% 81.5%
Citibank Bank of America
10.9%
Wells Fargo Bank The Chase
incl. Wachovia Manhattan Bank

2.3%
U.S. Bank Citibank

SOURCE: Federal Deposit Insurance Corporation

• Over the past decade, the share of deposits held by the five largest commercial banks (currently
Bank of America, Wells Fargo, JP Morgan Chase, Citi and U.S. Bank) has more than doubled,
rising from 19% to 40%.2

• The Top 5’s share of assets stands at 48%, up from 26% ten years ago.3

Bank Failures 2009 Biggest Bank Failures by State 2009

Assets Deposits Failures Assets Deposits Foreclosures

40,000 600,000
30,000 35
35,000
25,000 30 500,000
Assets and Deposits in $ Millions

Assets and Deposits in $ Millions

30,000
25 400,000
20,000 25,000
20
15,000 20,000 300,000
15 15,000
10,000 200,000
10 10,000
5,000 5 100,000
5,000
0 0 0 0
CA FL IL TX GA AL IN CO NV WA
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

SOURCE: Federal Deposit Insurance Corporation

• Smaller banks have been failing at the highest rate since the Savings and Loan crisis. The
Federal Deposit Insurance Corporation closed more than 140 banks in 2009, compared to 26
in 2008 and just 3 in 2007. 4

• The number of small commercial banks with assets of $50 million or less has declined from
over 3,600 in 1994 to 1,198, according to the most recent FDIC data. Since 1990, the overall
number of banks has dropped from more than 12,500 to about 8,000. 5

3
BIGGER BANKS, RISKIER BANKS

III. THE BIG BANKS GO ON GAMBLING WITH OUR MONEY

In 1999, Congress formally repealed the Glass-Steagall Act, the New Deal-era law that had
separated commercial banking from investment banking. Since then, America’s megabanks
have enjoyed powerful, taxpayer-financed advantages over smaller banks that choose to limit
their participation in the securities markets. More recently, in response to the meltdown, the
Federal Reserve and the Treasury Department have reinforced this policy tilt through skewed
distribution of subsidies and guarantees; through the extension of commercial-bank privi-
leges to Wall Street; and through a series of government-abetted mergers between commercial
banks and investment banks. The upshot (documented in the bank-by-bank assessments that
follow) is a new surge of high-stakes risk-taking at the public’s expense.

• While the quarterly profits of the biggest banks have increased sharply since the crisis,
higher trading revenues, not ordinary banking activity, account for the improvement in
one case after another.

• As the mega-banks continue to take hits from their consumer-oriented businesses due
to rising unemployment and mortgage and other defaults, they are sustaining them-
selves through a variety of speculative activities, including the repackaging of some of
the toxic assets that clogged the system last year.

• Since it takes real capital to trade, government subsidies are being absorbed into the
trading-for-profits vortex. The megabanks are, in effect, gambling with taxpayer funds.
IV. THE RISK PICTURE, BANK BY BANK

Bank of America

Revenue Breakdown Trading Revenue

Investment Banking Trading Revenue Total Net Revenue Trading Revenue

140,000 20,000
120,000 15,000
100,000
10,000
80,000
60,000 5,000
40,000
$ in Millions

$ in Millions
0
20,000
-5,000
0
-20,000 -10,000
2009 2008 2007 2006 2009 2008 2007 2006

SOURCE: S.E.C. 10-Q and 10-K filings: 2006-2009. *

• In 2009, the net revenues of Bank of America - the nation’s largest bank - were 64 percent
higher than they had been in 2008. But much of that improvement was due to a dramatic in-
crease in trading profits.6

• Trading revenue for 2009 was $15 billion, or 13 percent of total net revenue, up from a $6
billion loss the previous year and $7.2 billion, or 11 percent in 2007.7

• In July 2009, Bank of America reported total assets of $2.3 trillion, up 23 percent from a year
earlier. Over that same period, however, Bank of America was required to set aside 56 percent
more capital to cover looming credit losses.8

• Even as its profits and assets grew, so did the riskiness of the bank’s overall position. One widely
used metric, ‘value-at-risk’ or VaR (which estimates the daily possible fluctuation of trading po-
sitions), increased by 68 percent, from an average of $94.6 million in the third quarter of 2008 to
$159.4 million in the same quarter of 2009. (After averaging $110.7 million during 2008, Bank
of America’s VaR reached a record high of $244.6 million in the first quarter of 2009).9 1

* Bank of America’s accounting was clouded by its acquisition of Merrill Lynch. Every big merger brings an
opportunity to re-jigger the balance sheet. With key accounting elements in flux, risk comparisons across banks
become difficult.

5
BIGGER BANKS, RISKIER BANKS

JP Morgan Chase

Revenue Breakdown Trading Revenue

Investment Banking Trading Revenue Total Net Revenue Trading Revenue

120,000
100,000 20,000
80,000 15,000
60,000 10,000
40,000 5,000
$ in Millions

$ in Millions
20,000 0
0 -5,000
-20,000 -10,000
2009 2008 2007 2006 2009 2008 2007 2006

SOURCE: SEC 10K filings for 2006-2009.

• With its acquisitions of Bear Stearns and Washington Mutual, JPMorgan Chase now
ranks as the nation’s second largest bank in terms of assets. While it did not declare as
many bad consumer loans as Bank of America, JP Morgan Chase’s potential credit losses
have increased significantly to $32 billion in 2009 compared to $21 billion in 2008. 10

• Nevertheless, JPM Chase’s trading revenue has rebounded considerably since 2008.
The bank’s net profits, bolstered by record trading profits, more than doubled from $5.6
billion in 2008 to $11.7 billion in 2009. 11

• 2009 trading revenue stood at $14.7 billion, or 13.5 percent of total revenue. Trading
revenue had comprised 11.8 percent of total net revenue in 2007 and 14.6 percent in
2006. In 2008, the trading division racked up a loss of $7 billion. 12

• Due to increased reliance on trading, JPM Chase’s Value at Risk reached a record high
of $248 million in 2009; that’s a 23 percent increase over 2008. 13
Citigroup

Revenue Breakdown Trading Revenue

Investment Banking Trading Revenue Total Net Revenue Trading Revenue

100,000
40,000
80,000
60,000 20,000
40,000
0
20,000
$ in Millions

$ in Millions
0 -20,000
-20,000
-40,000 -40,000
2009 2008 2007 2006 2009 2008 2007 2006

SOURCE: S.E.C. 10-Q and 10-K filings: 2006-2009.

• Citigroup led the banking industry in government support at $374 billion. Though its net rev-
enues have rebounded (by 65 percent in 2009 compared to 2008), a significant amount of that
gain has come from trading. Citi generated $21.4 billion in trading revenue, or 27 percent of
net revenue, for 2009, compared to a negative $22.1 billion in 2008, $5.9 billion, or 7.5 percent
in 2007, and $24.7 billion, or 29 percent in 2006.15

• After soaring to a record high of $292 million in 2008, Citigroup’s VaR fell back to $281 million
in the third quarter of 2009. That figure, however, represented a 17 percent increase over the
third quarter of 2008, and was almost double the 2007 annual average of $142 million.16

• Citigroup’s accounting practices, like those of Bank of America, have grown more obfusca-
tory. In its latest 10-K Securities and Exchange Commission filing, Citi’s breakdown of trading
numbers failed to match its total trading revenue. Such inconsistencies could reflect creative
accounting to mask trading losses; at best, they make Citi’s books hard to understand, for
regulators or the public.17

7
BIGGER BANKS, RISKIER BANKS

Wells Fargo

Revenue Breakdown Trading Revenue

Trading/IB Merged Net Revenue Trading/IB Merged

100,000 25,000

80,000 20,000

60,000 15,000
$ in Millions

$ in Millions
40,000 10,000

20,000 5,000

0 0
2009 2008 2007 2006 2009 2008 2007 2006

SOURCE: S.E.C. 10-Q and 10-K filings: 2006-2009.

• Through its acquisition of Wachovia in another government-sponsored merger at the

end of 2008, Wells Fargo achieved an almost instant doubling of assets and profits. Its
allowance for credit losses, meanwhile, tripled from $8 billion to $24.5 billion.18

• Wells Fargo’s accounting is particularly problematic. Following the Wachovia acquisi-

tion, the innocuous-sounding category of “wholesale banking,” a term that normally
covers traditional lending, finance and asset management services, expanded to include
such speculative activities as fixed-income and equity trading. Because these things
aren’t broken out in the company’s SEC filing, it is impossible to say how much of the
total comes from trading as opposed to commercial or investment banking.19

• Wells describes its management accounting process as “dynamic” and not “necessarily
comparable with similar information for other financial services companies.” This state-
ment should give lawmakers pause: if banks are so complex as to need a catch-all exemp-
tion from accounting norms, it becomes hard to identify or measure activities that could
precipitate a crisis.20
Goldman Sachs

Revenue Breakdown Trading Revenue

Investment Banking Trading and Total Net Revenue Trading and Principal Investments
Principal Investments
40,000

60,000 30,000
50,000
40,000 20,000
30,000
$ in Millions

$ in Millions
20,000 10,000
10,000
0 0
2009 2008 2007 2006 2009 2008 2007 2006

SOURCE: S.E.C. 10-Q and 10-K filings: 2006-2009. *

• Goldman derives a higher portion of its revenues from trading than does any other big bank.
In 2009, the percentage of revenue from its trading and principal investment division (which
specializes in long-term speculative position taking) was 76 percent or $34.4 billion out of
$45.2 billion, compared to 41 percent, or $9 billion in 2008, and 68 percent in 2007 and 2006.21

• The firm posted a record profit of $13.4 billion for 2009, compared to $2.3 billion in 2008.
These gains were achieved on the back of $43.4 billion in total government subsidies (after
repaying $10 billion of TARP funds), including $12.9 billion via AIG, $19.5 billion in FDIC-
backed debt under the TLGP and approximately $11 billion under the Fed’s Commercial Paper
Funding Facility (CPFF).22

• Goldman, however, takes more risk than do other big banks. Its VaR reached a record $245
million during the second quarter, up 24 percent from the crisis quarter of 2008. Although that
figure declined to $218 million, average daily VaR for 2009 was 21 percent higher than in 2008. 23 2

* In 2008, Goldman brought its fiscal year (which had previously ended in November) into line with the calendar
year. December 2008 thus became an orphan month. Changing dates make annual and cross-bank risk compari-
sons difficult.

9
BIGGER BANKS, RISKIER BANKS

Morgan Stanley

Revenue Breakdown Trading Revenue

Investment Banking Trading Revenue Total Net Revenue Trading Revenue

30,000 20,000
25,000 15,000
20,000
15,000 10,000

10,000 5,000
$ in Millions

$ in Millions
5,000
0
0
-5,000 -5,000
2009 2008 2007 2006 2009 2008 2007 2006

SOURCE: S.E.C. 10-Q and 10-K filings: 2006-2009.

• Like Goldman Sachs, Morgan Stanley also changed its fiscal year. The firm posted af-
ter-tax income of $793 million in the 3rd quarter of 2009, compared to $33 million in
the second quarter, when it posted a $1.26 billion loss for its shareholders. The poor
performance contributed to calls for the replacement of its CEO, John Mack, who finally
stepped down at the beginning of 2010. Yet his successor, James Gorman, has empha-
sized the critical importance of the firm’s sales and trading units, suggesting a continued
appetite for risk.26

• Indeed, it was the $6.4 billion in trading revenue that generated much of the $23.4 bil-
lion in net revenue for Morgan Stanley during 2009, after abysmal losses during the crisis
months.27 In 2009, the firm’s trading revenue was 27 percent of total revenues, compared
to a loss in 2008, 31 percent for 2007, and 50 percent for 2006.28 By the third quarter of
2009, trading was the firm’s most profitable division; as a result, its VaR shot up to $175
million - a 47 percent increase since the third quarter of 2008.29
V. MEGABANKS ARE HARDER TO REGULATE

Three of the major banks examined here have dramatically altered the way in which they report
their trading and investment banking activities. In addition, Goldman Sachs and Morgan Stanley
have changed their year-end reporting dates. These and other perfectly legal moves serve to decrease
reporting consistency across the industry. Indeed, when it comes to consistent securities evaluation,
the Financial Accounting Standards Board (FASB) almost seemed to throw in the towel by deciding
in December 2008 to let financial firms adjust pricing in cases where the absence of an active market
makes objective pricing criteria elusive.30 It has become all but impossible to get an accurate or con-
sistent picture of what is the ‘real money’ that banks derive from commercial or consumer services,
and what is their ‘play money’ used for trading purposes. The play money is the most variable part of
their earnings, and therefore the most risky to the overall financial system, particularly since much
of the capital was federally funded during the past year.

Today’s megabanks engage in a continual subjective re-evaluation of their trading positions - how
they value bonds, derivatives, asset-backed-securities, and off-balance-sheet entities. When a bank
marks a position in securities or derivatives or complex customer-driven transactions that they go
on to ‘hedge,’ the figures it posts are almost arbitrary, and, in any case, all but impossible to verify.
Such problems, which are characteristic of larger and merged banks, create regulatory obstacles that
in themselves should form a powerful argument for smaller and simpler banks.

11
BIGGER BANKS, RISKIER BANKS

CONCLUSION

Little more than a year after a disaster that was largely of their making, the country’s biggest
banks have grown even bigger, in no small part because of government subsidies and interven-
tions. One after another, the mega-banks have found their way back to profitability, and even
to record levels of profitability in a few cases. They have done so, however, through a return
to the kind of high-risk practices that produced the meltdown. Perhaps the biggest difference
between then and now is that more of the capital for today’s high levels of trading and securi-
ties packaging comes from the taxpayers in the first place.

In response to the financial crisis, the Obama administration and House and Senate leaders
have called for reforms widely described as the most sweeping since the 1930s. These propos-
als have already been watered down significantly under pressure from the financial lobby. But
even as originally outlined, they were not nearly sweeping enough.

The core problem is an industry dominated by in-

It is time for Congress to create a creasingly large, complex, opaque, and intercon-
framework for banks to transform nected institutions, which have become accus-
themselves into leaner, more tomed to taking dangerous risks with deposits and
accountable, and sustainable borrowed money, including low-cost government-
financial institutions. subsidized capital. (Given that mindset, it should
come as no surprise that despite low interest rates
and surging bank profits, many deserving businesses cannot get credit, while foreclosures
continue to increase as homeowners struggle to refinance unaffordable mortgages.)

Some of the financial reform measures currently on the table are sensible and needed, such
as the creation of a Consumer Financial Protection Agency and the provisions for exchange-
trading of financial derivatives. But when it comes to leverage and systemic risk, the Adminis-
tration and congressional leaders rely on general calls for restraint, leaving the specifics - and
the enforcement – to regulators with poor records of recognizing systemic risk. The Admin-
istration’s preferred systemic risk regulator, the Federal Reserve, has a governing structure
dominated by the banking industry as well as a regulatory culture that favors bank mergers
and disfavors regulatory interference.31

The proposals making their way through Congress would establish a process for the safe “reso-
lution” or unwinding of large, failing institutions. But the record cries out for a pro-active
rather than a reactive approach. It is time for Congress to create a framework for banks to
transform themselves into leaner, more accountable, and sustainable financial institutions.
“Too Big to Fail” should mean too big to exist, as former Fed chairman Alan Greenspan and former
Treasury Secretary George Shultz have argued. Just as crucially (see Demos’ policy brief, Six Principles
for True Systemic Risk Reform), the principle of Glass-Steagall should be reestablished: the financial
world should once again be divided into commercial entities, which can count on government support,
and investment and trading entities, which cannot.

Legislation to this effect has been introduced by Senators “I would compartmentalize the
Maria Cantwell (D-WA) and John McCain (R-AZ)32 in the industry for the same reason
Senate, and by Reps. Marcy Kaptur (D-OH)33 and Maurice you compartmentalize ships...
Hinchey (D-NY)34 in the House. A group of Democratic If you have a leak, the leak
members submitted a Glass-Steagall restoration amend- doesn’t spread and sink the
ment as well as other measures that would have limited whole vessel.”
bank size to the House Rules Committee for inclusion in
the Wall Street Reform and Consumer Protection Act; but the Committee did not advance these more
aggressive amendments to the floor. The concept of a modern-day Glass-Steagall Act has also been
endorsed by former Fed Chairman Paul Volcker and former Citigroup CEO John Reed, among many
others. “I would compartmentalize the industry for the same reason you compartmentalize ships,”
Reed explained to a reporter. “If you have a leak, the leak doesn’t spread and sink the whole vessel.” 35

The American taxpayers, through their deposits and loans and federal support, should no longer be
asked to subsidize the risk-taking of Wall Street traders and goliath institutions that operate more
like hedge funds than financial service firms. As taxpayers, consumers, and shareholders, we have
paid – and continue to pay - too high a price for this policy.

13
BIGGER BANKS, RISKIER BANKS

ENDNOTES

1. Federal Reserve, list of financial holding companies at http://www.federalreserve.gov/generalinfo/fhc/, Definition

of FHC at http://www.ffiec.gov/nicpubweb/Content/HELP/Institution%20Type%20Description.htm.
2. FDIC Summary of Deposits at http://www2.fdic.gov/sod/index.asp.
3. Ibid.
4. FDIC Failed Bank List at http://www.fdic.gov/bank/individual/failed/banklist.html.
5. Colin Barr, “Small Banks, Big Problems,” Fortune/CNN Money, December 23, 2009, http://money.cnn.
com/2009/12/22/news/economy/banks.fortune/index.htm.
6. Bank of America, Supplemental Information Fourth Quarter 2009, January 20, 2010.
7. Ibid., SEC Form 10-K 2007 and 2008 available at http://edgar.sec.gov/.
8. SEC Form 10-Q available at http://edgar.sec.gov/.
9. Ibid.
10. JPMorgan Chase & Co., Earnings Release Financial Supplement Fourth Quarter 2009, January 15, 2010.
11. Ibid.
12. Ibid.
13. Ibid.
14. Nomi Prins and Krisztina Ugrin, “Bailout Tally Report,” appendix to Prins, It Takes a Pillage (John Wiley &
Sons, 2009), available at http://www.sitemason.com/files/esMlDW/bailouttallydec2009.pdf
15. SEC Form 10-K 2007-09, available at http://edgar.sec.gov/, Citigroup, Quarterly Financial Data Supplement,
January 19, 2010.
16. Ibid.
17. Ibid.
18. SEC Form 10-Q available at http://edgar.sec.gov/.
19. Ibid.
20. Ibid.
21. Goldman Sachs, Fourth Quarter 2009 Earnings Release, January 21, 2009.
22. Nomi Prins and Krisztina Ugrin, “Bailout Tally Report,” appendix to Prins, It Takes a Pillage (John Wiley &
Sons, 2009), available at http://www.sitemason.com/files/esMlDW/bailouttallydec2009.pdf.
23. SEC Form 10-Q, http://edgar.sec.gov/ Goldman Sachs, Fourth Quarter 2009 Earnings Release, January 21, 2009.
24. SEC Form 10-K http://edgar.sec.gov/.
25. SEC Forms 10-Q available at http://edgar.sec.gov/.
26. Mark DeCambre, “New Morgan Boss Stirs Worry in the Ranks,” New York Post, October 12, 2009.
27. SEC Forms 10-Q available at http://edgar.sec.gov/.
28. SEC Forms 10-Q and 10-K available at http://edgar.sec.gov/.
29. Morgan Stanley, Financial Supplement Fourth Quarter 2009, January 20, 2010.
30. Financial Accounting Standards Board, “Determining the Fair Value of a Financial Asset When the Market for
That Asset Is Not Active,” available at http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlob
s&blobkey=id&blobwhere=1175818747583&blobheader=application%2Fpdf.
31. Binyamin Appelbaum and David Cho, “Fed’s approach to regulation left banks exposed to crisis,” Washington
Post, December 21, 2009, available at http://www.washingtonpost.com/wp-dyn/content/article/2009/12/20/
AR2009122002580.html.
32. S. 2886, Banking Integrity Act of 2009, introduced December 16, 2009.
33. H.R. 4377, Return to Prudent Banking Act of 2009, introduced December 16, 2009.
34. H.R. 4375, Glass-Steagall Restoration Act, introduced December16, 2009.
35. Bob Ivry, “Reed Says ‘I’m Sorry’ for Role in Creating Citigroup,” Bloomberg, November 6, 2009.

15
BIGGER BANKS, RISKIER BANKS

APPENDIX: BANK MERGERS AND CONSOLIDATION

The following tables show the largest mergers that contributed to the creation of the 5 biggest
bank holding companies.

date taRGet NaMe aCQUIReR NaMe VaLUe ($ MILLIoNs)

BaNk of aMeRICa
9/15/2008 Merril Lynch & Co. Inc. Bank of America Corp. 48,766.2
1/11/2008 Countrywide Financial Corp. Bank of America Corp. 4,000.0
4/23/2007 ABN AMRO North America Holding Bank of America Corp. 21,000.0
06/30/2005 MBNA Corp. Bank of America Corp. 35,810.3
10/27/2003 FleetBoston Financial Corp. Bank of America Corp. 49,260.6
3/14/1999 Bank Boston Corp., Boston, MA Fleet Financial Group Inc, MA 15,925.2
4/13/1998 BankAmerica Corp. Nations Bank Corp., Charlotte, NC 61,633.4
8/29/1997 Barnett Banks, Jacksonville, FL Nations Bank Corp., Charlotte, NC 14,821.7
8/30/1996 Boatmen’s Bancshares Inc. Bank of America Corp. 9,523.4

CItIGRoUp
7/30/2009 Citigroup Inc. Preferred Shareholders 28,078.3
7/15/2003 Sear’s Credit Card & Financial Products Bus. Citigroup Inc. 42,200.0
9/06/2003 Associates First Capital Corp. Citigroup Inc. 30,957.5
4/06/1998 Citicorp Travelers Group Inc. 72,558.2
10/28/1997 Associates First Capital Corp. Shareholders 26,624.6
9/24/1997 Salomon Inc. Travelers Group Inc. 13,579.2

WeLLs faRGo
10/03/2008 Wachovia Corp., Charlotte, NC Wells Fargo, San Francisco, CA 15,112.0
5/07/2006 Golden West Financial Corp., CA Wachovia Corp., Charlotte, NC 25,500.9
6/21/2004 SouthTrust Corp., Birmingham, AL Wachovia Corp., Charlotte, NC 14,155.8
5/20/2003 Pacific Northwest Bancorp Wells Fargo & Co. 28,108.0
4/16/2001 Wachovia Corp., Winston-Salem, NC First Union Corp., Charlotte, NC 13,132.2
10/30/2000 Republic Security Financial Corp., PA Wachovia Corp. 9,911.5
6/08/1998 Wells Fargo, San Francisco, CA Northwest Corp., Minneapolis, MN 34,352.6
11/18/1997 Core States Financial Corp. PA First Union Corp., Charlotte, NC 17,122.2
10/18/1995 First Interstate Bancorp. Wells Fargo & Co. 11,600.0

SOURCE: Thompson Reuters, Top 40 and Top 100 Mergers 1988-2009

 Financial US Mergers & 1988-2009
Number of Deals Value ($ millions)

Citicorp - Travelers Group

1500 450,000
JP Morgan - Chase Manhattan 400,000
1200 350,000
300,000
900
250,000
200,000
600
150,000
300 100,000
50,000
0 0
1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
Riegle-Neal Act GLB Act

SOURCE: Thompson Reuters, Top 40 and Top 100 Mergers 1988-2009.*

* Through November 4, 2009.

17
RELATED RESOURCES

Reports on Financial Regulation

A Brief History of the Glass-Steagall Act by James Lardner (November 2009)

Six Principles for True Systemic Risk Reform by Nomi Prins Heather C. McGhee (November 2009)

A Primer on Key CFPA Amendments in the Wall Street Reform and Consumer Protection Act by Heather C. McGhee (December 2009)

Financial Regulation: After the Fall by Robert Kuttner (January 2009)

Reforming the Rating Agencies: A Solution that Fits the Problem by James Lardner (December 2009)

Subpriming Our Students: Why We Need a Strong Consumer Financial Protection Agency jointly published with U.S. PIRG
(December 2009)

Beyond the Mortgage Meltdown: Addressing the Current Crisis, Avoiding a Future Catastrophe by James Lardner (July 2008)

The New Squeeze: How a Perfect Storm of Bad Mortgages and Credit Card Debt Could Paralyze the Recovery by Jose Garcia
(November 2008)

Books
It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street by Nomi Prins (John Wiley &
Sons, September 2009)

Up to Our Eyeballs: How Shady Lenders and Failed Economic Policies are Drowning Americans in Debt by Jose Garcia, James Lardner,
and Cindy Zeldin (March 2008)

Strapped: Why America’s 20- and 30-Somethings Can’t Get Ahead by Tamara Draut (Doubleday, January 2006)

The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity by Robert Kuttner (Knopf, November 2007)

Inequality Matters: The Growing Economic Divide in America and its Poisonous Consequences (New Press, January 2006)

For further research on this topic and on others, please visit www.demos.org.

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