After a disappointing earnings season for the “Big Four” American banks, calls for breaking up the massive companies have once again started to surface, and the stocks of JPMorgan Chase & Co. JPM, Bank of America Corp BAC, Citigroup Inc C and Wells Fargo & Co WFC are all down sharply on the year.
Break Up Banter Began Years Ago
Cries to break up the big banks began after the Financial Crisis of 2007-2008 required billions of taxpayer dollars to be shelled out to banks that the government deemed “too big to fail,” because of the systemic risk their failure would have posed to the entire financial system. New regulations, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, have since been put in place restricting the behavior of the big banks and requiring more government oversight of their balance sheets and capital return plans.
Current Situation
How have all of the new laws and regulations affected the size of the Big Four? The chart below shows the changes in total assets on the balance sheets of the banks since the beginning of 2007.
Clearly, three of the four “too big to fail” banks have grown much larger since 2007, with Wells Fargo nearly tripling in size over that span. The four banks currently hold a combined total of more than $8.2 trillion in total assets, approximately half the size of the U.S.’s annual GDP.
Where Does the Dodd-Frank Act Come In Now?
While the quality of the big bank's balance sheets may be better these days than it was prior to the crisis, recent legislation has undone parts of the Dodd-Frank Act. Outspoken Massachusetts Senator Elizabeth Warren publicly blasted the bill and lashed out at Citigroup specifically. “There is a lot of talk coming from Citigroup about how Dodd-Frank isn’t perfect. So let me say this to anyone who is listening at Citi – I agree with you. Dodd-Frank isn’t perfect. It should have broken you into pieces.”
JPMorgan CEO Jamie Dimon defended his company after its earnings report and touted the benefits of its large size. “The synergies are huge … and some, not all, would disappear under various schematics of a breakup.”
As the banks continue to grow, it’s likely that the debate over whether they should be broken up will continue. For now, it appears the Big Four will continue getting bigger.
Disclosure: The author owns shares of Bank of America and Wells Fargo.
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