American Banker has a fun flashback that helps show how out of whack our financial system has gotten in the last half century.
Here’s the paper’s lede from January 1955 when Chase merged with the Bank of Manhattan (emphasis mine):
John J. McCloy, chairman of the Chase National Bank of the City of New York, and J. Stewart Baker, chairman of the Bank of the Manhattan Co., in a statement to the press today announced that their respective boards of directors “are in agreement on basic terms to merge the two institutions.”
The resultant $7.5 billion bank, to be called “The Chase Manhattan Bank,” would be second largest in the United States and largest in New York City. It would operate under the State charter originally granted by the New York legislature in 1799 to the Manhattan Co.
The second biggest bank in the country back then had $7.5 billion in assets, which would be about $63 billion in today’s dollars. That would put it about, oh, $2,135 billion ($2.1 trillion) behind the second-biggest bank today.
And it would land Ye Olde Chase Manhattan at No. 32 on the top banks list today, just behind BBVA USA Bancshares Incorporated, whatever that is.
Okay, but the economy has grown since 1955, you say. Well, let’s look at assets as a percentage of GDP. Chase’s assets in 1955 were 1.9 percent of U.S. GDP, which was $404 billion at the time.
The second-biggest bank in 2011 has assets of $2.2 trillion, while the U.S. has GDP of $14.7 trillion (last year). That means its assets equal 15 percent of GDP.
That second-biggest bank in the land today?
Yup, it’s JPMorgan Chase, it’s way too big to fail, and its astronomical growth is an emblem of the over-financialization of our economy.
Nice!
(oh, yeah: Why do you hate freedom?)
#1 Posted by Edward Ericson Jr., CJR on Wed 6 Jul 2011 at 02:00 PM
Hmm, I wrote up a comment that hasn't been posted, apparently cuz I had the temerity to include multiple links sourcing my data, so I'm reposting it split up now. Apparently comments held over for "approval" are just taken out with trash bags and dumped somewhere.
First off, let me begin by saying that I agree that the banks have gotten far too big. However, you make some big mistakes in this post. You are comparing a stock, bank assets, to a flow, GDP, which Dani Rodrik has called a sign of economic illiteracy. To get the real numbers, we can look at the Fed's Z.1 releases, which include total household assets, probably the best indicator of national assets. They list 1.58 trillion for 1955 (p. 95).
#2 Posted by Ajay, CJR on Thu 7 Jul 2011 at 03:00 PM
The numbers show almost $72 trillion for Q1 2011, which means Chase had less than 0.5% of household assets in 1955 and a bit more than 3% of household assets today. Doesn't seem quite so astronomical now, does it?
Second, the main reason Chase is the second-largest bank today is that it was essentially forced to swallow a bunch of failing banks like Bear and WaMu during the financial crisis a couple years ago, which is mostly why it ballooned from $1.35 trillion in late 2006 to $2.2 trillion today. It's a bit perverse to blame Chase for being so big after the govt forced them to swallow a bunch of failing banks that they otherwise wouldn't have bought.
Ultimately, I see little reason for a bank to get so big, but I trust the market to sort it out, barring perverse incentives like bailouts, forced mergers, and overregulation. And oh yeah, why do you hate freedom? ;)
#3 Posted by Ajay, CJR on Thu 7 Jul 2011 at 03:05 PM