Social Question

Dutchess_III's avatar

What does the following chart about banks mean?

Asked by Dutchess_III (42455points) January 24th, 2016
Observing members: 0 Composing members: 0

18 Answers

rojo's avatar

I think the thing to do is look and find out who owns these four banks and who are the stockholders. That should give a clearer picture of what the chart actually means.

Inara27's avatar

That the natural mode of the free market is to consolidate companies and provide less competition in the market. From this chart, I see four banks that are “too large to fail”. Too much power to affect the entire world resting in the hands of a few executives.

johnpowell's avatar

I have taken a few hundred credit hours of ECON classes and this is expected. Normally I am a free-market guy until this happens.We see this with ISPs and wireless providers too. Capitalism gravitates towards consolidation. This where the government must step in and break things up to reintroduce competition.

LuckyGuy's avatar

Where are brokerage houses like Fidelity and Vanguard? Are they too small to list?
Fidelity has $2 Trillion AUM (assets under management) $15 Billion in revenues.
Vanguard has $3 Trillion AUM.
There are probably others I’ve missed.

Seek's avatar

I don’t think it’s meant to be a comprehensive list, just a demonstration of the mergers that lead to these particular uber-banks.

I got my first bank account at First Union. Then it became Wachovia, then Wells Fargo. Then I switched to Chase because I was tired of being manhandled by mergers.

johnpowell's avatar

@LuckyGuy :: While large financial institutions they don’t really play the same role in the economy or even in peoples daily life. I’m sure most people don’t know (and shouldn’t) know what VWEHX is. Your broker doesn’t have your liquid assets or hold your mortgage or auto loan.

Dutchess_III's avatar

Thanks you guys. So do you think the government has an obligation to come in and do something about those particular banks? If so, why haven’t they yet?

@johnpowell A few hundred credit hours just in econ? That’s like a 4th degree PhD.

johnpowell's avatar

Oregon does the hours a bit differently. Trimesters. But you are right. I checked and it is 116 between econ and accounting..

elbanditoroso's avatar

Capitalism at work. The free market. Hog heaven for the republican party.

But the flip side is that this environment (a few big banks) has made it possible for a wide array of community and regional banks, internet banks, credit unions, and other financial institutions to be created and thrive.

Just like when that 200-year old tree in the forest finally falls over, there are lots of saplings that are ready to thrive in its place.

rojo's avatar

Institutional Investors own the majority of each of these banks and, in order of shares owned in each they are as follows:
J P Morgan Chase

Black Rock
Vanguard
State Street
Fidelity
Capital Reseach and Mgmt.

Citibank

Black Rock
Vanguard
State Street
Capital Reseach and Mgmt.
Fidelity

Bank of America

Black Rock
Vanguard
State Street
Fidelity
T.Rowe Price

Wells Fargo

Berkshire Hathaway
Grand-Jean Capital Mgmt.
Vanguard
Harding-Loevner
OTR

and, as an aside, at Wells Fargo – State Street, Fidelity and Capital come is at 6,7 & 8 respectively while Black Rock is the 12th

So I guess what this means is that the same folks own all four already.

And I guess this answers @LuckyGuy ‘s question as well.

CWOTUS's avatar

“What it means” is a partial story to support an apparent particular political viewpoint that “big banks are bad”. In other words, because of the data that it omits, it’s a kind of lie.

Yes, clearly, many formerly independent banks have been acquired by larger banks and have become, as noted “mega banks”. This kind of merger and acquisition activity happens all the time in nearly all industries. The omitted data? Independent banking in the USA is alive and well and flourishing quite nicely, thank you. But you wouldn’t know that from this chart. @LuckyGuy and @elbanditoroso have alluded to this.

Anyone can google “independent banks in the usa” and find the same links I did. The writer of this piece, had it wanted to (because I see no authorship listed, which is another type of omission that causes me to look askance at it) could have done a “compare and contrast” to illustrate the point. But the writer chose not to confuse people with the facts, only to make a scary Mega Bank chart. It would have been interesting to show “assets under management by US banks” on a column graph, and maybe the data are available publicly somewhere, but the writer omitted that, too.

One economic fact of life in our modern world is that there is a necessary – vital, even – place for banks that are so well-capitalized. Modern development projects (I work on “power plants”, but you could just as easily substitute “oil and gas field development”, “factories”, and even “high-rise apartment buildings” and “farms” in some cases) require extraordinary amounts of capital, on the order of billions of dollars, to be managed and spent over the lifetime of the development project.

A lot of people with no exposure to these kinds of projects might laugh and say, “Oh, I can spend that money in a heartbeat!” But the fact is that the volume of invoicing and remittance communication alone (to say nothing of the cash transactions behind them) is overwhelming. The First National Bank of Podunk couldn’t even handle opening and responding to the mail alone, aside from the fact that they just haven’t got the reserves to be able to take the risk – because there is always risk! – to finance a $2 billion project to be built for a Vietnamese owner on orders from a European company operating in Southeast Asia and erected by a contractor from Japan using subcontractors from all over SE Asia and vendors from all around the world sending goods by ocean freight over a period of several years. Each transaction has to be managed. Every. Single. One.

Because you don’t just “spend money”. All of the invoices have to be reviewed, verified and approved and accounted for. And of course, you need to have the cash, and you need to have enough business aside from this one project that its potential failure – or even simple delay – won’t wipe out your entire bank. And then, of course, you need to be able to collect the cash payments from the owner of the development, meaning that everything has to be re-proven and re-billed to them in a manner that they will agree to pay.

Many nations, China, for one, overtly and explicitly nationalize the institutions that finance these kinds of projects. The problem there is that the control is prima facie political, meaning that it is only answerable to its political masters and their conscience. There is no open reporting, no public accountability whatsoever, and truly massive potential for routine corruption. Just watch the stories that are going to come out of China when their bubble finally bursts. It may even be later this year.

This is not to say that I sign on to every deal that the US-based banks make, nor do I support our government’s bailouts or the means that were used to accomplish those. All I’m saying is that these are “public” institutions with normal, transparent requirements and reporting; they are not “the only game in town” – and it is necessary for us all (not just “Americans”) that they exist in some way.

Dutchess_III's avatar

Wow. That’s exactly what I was looking for @CWOTUS. I just didn’t know it. 105.5 GAs. Thanks.

stanleybmanly's avatar

What the chart is really about is the increasing concentration of wealth, and growing profit margins, paralleled by rising fees and declining services. This stark and shameful restoration of gilded age realities is only possible in a society where the banks effectively own the government supposedly responsible for their regulation.

stanleybmanly's avatar

The argument that mega banks are required to finance and sustain mega projects sounds plauslible and might very well be true. But it’s that other end of the relationship megabamks have within society, their day to day interactions and dealings with you or I that need a good looking at. Say the ability to charge 25% interest rates on credit card debt in an environment where dividends on savings average ½ of 1%.

CWOTUS's avatar

If you don’t like your bank you don’t have to keep your bank.

stanleybmanly's avatar

You’re right. I have a choice of any one of the four thieves. Actually, I give my business to either of 2 credit unions whenever possible. But the sinister reality is that is exceedingly difficult to avoid the tentacles of the creatures worming their slimy way through your pockets.

rojo's avatar

^^ @CWOTUS is right.

I did. I got tired Wells Fargo and their interminable phone trees and them neither knowing or caring who I was. I am with a smaller bank now and when I pull into the drive-thru or go into the lobby the folks actually know who I am and help me out. I no longer feel like a number but a person who is important to the success of their business.

johnpowell's avatar

I have used Oregon Teachers Credit Union since 2001. They were bought by OnPiont maybe six years ago and I wasn’t thrilled. But it was a lot of work to switch everything over so I never bothered. So I didn’t. Easier to to STFU and carry on. OnPiont has been fantastic BTW.

But the thing is banks make money from loans. If you have a bank you feel good with you go to them for a mortgage or a car loan. That is how they make a lot of money. Overdraft fees and your auto loan. That will make you a billionaire.

So, now that you are tied in with your mortgage and auto loan it makes it harder to move banks.

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