A Brave New Banking System


A brave new banking system – while public is told banking system is healthy FDIC quietly grows troubled bank list by 180 and adds over 1,600 employees in the last two years to deal with bank failures.

The banking system in the United States rests on a very thin layer of faith and that faith has been shaken by the current financial crisis.  The retail banking system is largely a facade that now latches on to taxpayer bailouts to fund speculative investments through their investment banking divisions.  The repeal of Glass-Steagall has been an absolute failure for allowing this commingling of financial functions.  I find it interesting that while we get a public stance that all is well on the banking front, we find that the FDIC keeps adding employees to handle bank failures and the number of problem institutions continues to grow.  Of course this is the kind of information that is buried deep in websites and financial statements while most of the press focuses on distractions.


Why would FDIC keep expanding through recovery?

I was digging through FDIC data and found the below information rather enlightening.  While we are told that the condition of our financial system is getting better, we find that the FDIC is adding more and more employees while the number of banks deemed “problems” continues to grow:

fdic banking data

Source:  FDIC

In the last two years the number of problem institutions jumped from 702 in 2008 to 888 currently.  We have also added many more FDIC employees (from 6,557 to 8,233).  What I find illuminating is that in 2007, at the peak of the credit bubble only 50 institutions were regarded as problematic.  In other words, the main institution overseeing our banking system and deposits had no clue at the apex of the bubble that a problem was imminent.  Should we now be surprised that we are told that banking conditions are healthy while the above data tells us a very different story?

Too big to succeed

In the 1990s we had anywhere from 20 to 30 banks with total assets larger than $20 billion.  At the peak of the crisis we had closer to 55 but today we are nearly back to 50.  The too big to fail banks have gotten even bigger. This was always an interesting argument taken by the financial sector.  We were told that too big to fail was part of the problem and caused a systemic meltdown.  The solution?  Make the too big to fail even bigger.  So it is no surprise that while the middle class becomes smaller and pays for the bailouts this select group of banks become even bigger and more profitable. The list of giant banks is troubling:

too big to fail

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