WaPo: Big Bad Banks Are Getting Bigger, Badder

The Washington Post has a story after my own heart this morning on how the Too Big to Fail guys have gotten even bigger during this crisis.

It’s an outstanding look at why this is a problem, reported well enough to show how it’s already becoming one.

Why haven’t we seen more stories pointing out this massive concentration of power (emphasis mine):

J.P. Morgan Chase, an amalgam of some of Wall Street’s most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.

Are you kidding me?

At least the government is making the right noises—for what that’s worth (and it may be worth a whole lot of nothing). The Post has interviews with FDIC Chairwoman Sheila Bair and Treasury Secretary Tim Geithner.

“It is at the top of the list of things that need to be fixed,” said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. “It fed the crisis, and it has gotten worse because of the crisis”…

“The dominant public policy imperative motivating reform is to address the moral hazard risk created by what we did, what we had to do in the crisis to save the economy,” Treasury Secretary Timothy F. Geithner said in an interview.

I also like how reporter David Cho puts the consumer angle up high, noting that such concentrations of power don’t encourage competition.

This is a good quote:

“There’s been a significant consolidation among the big banks, and it’s kind of hollowing out the banking system,” said Mark Zandi, chief economist of Moody’s Economy.com. “You’ll be left with very large institutions and small ones that fill in the cracks. But it’ll be difficult for the mid-tier institutions to thrive.”

“The oligopoly has tightened,” he added.

Which implies that there was an oligopoly to begin with. I’ll concede that was arguable, but it’s not now. Check out these data:

In the last quarter, the top four banks raised fees related to deposits by an average of 8 percent, according to research from the Federal Reserve Bank of Dallas. Striving to stay competitive, smaller banks lowered their fees by an average of 12 percent.

That is not what you call an efficient market. Oh, you say, this is consumer choice. They want to bank at the behemoths. Tell that to Santa Cruz:

In Santa Cruz, Calif., Wells Fargo, Bank of America and J.P. Morgan Chase hold three-quarters of the deposit market. Each firm was given tens of billions of dollars in bailout funds to help it swallow other banks.

The rest of the market, which consists of a handful of tiny community banks, cannot match the marketing power of the bigger banks.

The Post is also good to finger the government for making the situation worse by forcing mergers or by making them lucrative, anyway. And it gives good space to small banks and tried to get the giants’ thoughts, but they wouldn’t give them.

And the best part comes in italics at the end: “First in an occasional series of articles.”

Keep ‘em coming.

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.