Way to Go DC -Too Big To Fail Banks Are Growing

Five Banks Dominate In Derivatives


Way to Go D.C.-Growing the Banks That Are Too Big to Fail, Squashing the Little GuyWhile the OWS are condemning Wall Street, with 2/3rd of NYC in support, they are missing the real crime, which rests squarely with the policy making coming out of DC.

Five banks, FIVE, now dominate in derivatives and the Dodd-Frank “resolution” provision will do nothing to stop them from failing with disastrous consequences. Morgan-Stanley, for one, has massive exposure to European banks, over 97% of their assets are FX (foreign exchange market, and we know how well they’re doing).

According to Zerohedge, a mere 5 banks (and really 4) account for 95.9% of all derivative exposure (HSBC replaced Wells as the Top 5th bank, which at $3.9 trillion in derivative exposure is a distant place from#4 Goldman with $47.7 trillion). The top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure. As historically has been the case, the bulk of consolidated exposure is in Interest Rate swaps ($204.6 trillion), followed by FX ($26.5TR), CDS ($15.2 trillion), and Equity and Commodity with $1.6 and $1.4 trillion, respectively.

And that’s your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all time high and up $5.3 trillion from Q1 as they have to risk ever more in the derivatives market to generate that incremental penny of return.

The answer according to Economists is bilateral netting. Wrong. The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold). It didn’t work with AIG nor did it work with Lehman. While they might pursue 100% restitution, they are lucky to get 20%.

This year, regulators have closed small banks in GeorgiaNorth Carolina and New Jersey, boosting to 80 the number of U.S. bank failures this year. Smaller banks aren’t making it, but the bigger banks are becoming more powerful.

Thank the regulators and Dodd-Frank, the cost of doing business if you are a small bank is prohibitive. 

In 2006, there were no bank failures, in 2007, there were 3, in 2008, there were 25, in 2009, there were 140 bank failures, in 2010, there were 157 bank failures, in 2011 through October 80 banks seized, averaging 7-8 a month. 

Banks are seized based on an audit and no advance notice is given to creditors. It costs the FDIC billions in losses to taxpayers.

Last year, Obama’s pet Chicago bank failed despite pouring taxpayer money into it. After a lengthy attempt to bail out his pet bank, Shore Bank Chicago, Illinois, which included several alleged armtwisting episodes by the administration, the president has finally let the bank die (with its assets valued at about 50% of face). Yet instead of going to hell, it was immediately resurrected with a bevy of new owners, among them Goldman, Morgan Stanley, and BofA, all of whom received nearly $400 million in taxpayer money for their “generosity” to keep the bank zombified even in the afterlife.

Nothing going on here, move on.

2011 Bank Seizures by Regulators
Country Bank

First State Bank

Blue Ridge Savings Bank, Inc.

Piedmont Community Bank

Sun Security Bank

The RiverBank Wyoming

First International Bank

Citizens Bank of Northern California

Bank of the Commonwealth

First National Bank of Florida

CreekSide Bank

Patriot Bank of Georgia

First Choice Bank

First Southern National Bank

Lydian Private Bank

Public Savings Bank

The First National Bank of Olathe

Bank of Whitman

Bank of Shorewood

Integra Bank National Association

BankMeridian, N.A.

Virginia Business Bank

Bank of Choice

LandMark Bank of Florida

Southshore Community Bank

Summit Bank

First Peoples Bank

High Trust Bank

One Georgia Bank

Signature Bank Windsor

Colorado Capital Bank

First Chicago Bank & Trust

Mountain Heritage Bank Clayton

First Commercial Bank of Tampa Bay

McIntosh State Bank

Atlantic Bank and Trust

First Heritage Bank

Summit Bank

First Georgia Banking Company

Atlantic Southern Bank

Coastal Bank

Community Central Bank

The Park Avenue Bank

First Choice Community Bank

Cortez Community Bank

Heritage Banking Group

Rosemount National Bank

Superior Bank

Nexity Bank

New Horizons Bank

Bartow County Bank

Nevada Commerce Bank

Western Springs National Bank and Trust

The Bank of Commerce

Legacy Bank

First National Bank of Davis

Valley Community Bank St. Charles

San Luis Trust Bank, FSB

Charter Oak Bank

Citizens Bank of Effingham

Habersham Bank

Canyon National Bank
Badger State Bank
Peoples State Bank

Sunshine State Community Bank

Community First Bank Chicago

North Georgia Bank

American Trust Bank

First Community Bank

FirsTier Bank

Evergreen State Bank

The First State Bank

United Western Bank

The Bank of Asheville

CommunitySouth Bank & Trust

Enterprise Banking Company

Oglethorpe Bank

Legacy Bank

First Commercial Bank of Florida