The Making of the Banking Behemoths

Article excerpt

To further the campaign for efficiency and speed, federal bank regulators and the Justice Department might consider assembling the nation's big banks for a mass marriage ceremony in the first available football stadium.

It might deprive a few hundred lawyers and consultants of hefty fees, but the result would not be much different than the pro-forma, few-questions-asked procedures that have waved nearly 1,500 bank mergers through the gates since 1993.

Many of the smaller- and medium-sized marriages did not get much media attention, but last year's royal weddings of Chase and Chemical Bank in New York and Wells Fargo and First Interstate in California hit the front pages. The Chase-Chemical merger created the nation's largest bank with $300 billion in assets. The Wells Fargo-Interstate merger formed a new West Coast giant, combining more than $100 billion in assets.

The rash of other multibillion dollar mergers in 1995 included First Chicago-NBD Bancorp, First Fidelity-First Union, Integra Financial-National City and Fleet Financial-Shawmut. Dozens of other bank marriages also created and strengthened regional banking powers.

While some of the frenzy has cooled, massive consolidation of the nation's banking resources is an ongoing trend. Already, 71.5 percent of the U.S. banking assets are controlled by the 100 largest banking organizations, less than 1 percent of the total.

THE TOP TEN BANKS

                                                         Assets(*)

Chase Manhattan-Chemical, New York                        $301,984
Citicorp, New York                                        $263,566
Bank America Corp, San Francisco                          $234,243
J. P. Morgan and Company, New York                        $204,747
NationsBank Corp Charlotte, N. C                          $194,375
First Union corp, Charlotte, N. C                         $130,581
First Chicago-NBD Corp, Chicago                           $115,465
Bankers Trust, New York                                   $108,144
Wells Fargo-First Interstate, California                  $100,000
Banc One Corp, Columbus, Ohio                              $95,708

* Dollar amounts in millions

If the concentration of economic power is creating concern among bank regulators, members of Congress or Clinton Administration policymakers, it is a well-kept secret. The regulators, the Justice Department and Congress, for the most part, have adopted an Alfred E. Neuman "what me worry" stance.

But the creation of a financial system dominated by a handful of megabanks and mammoth holding companies poses real problems - Washington's apathy notwithstanding. The trend to bigger banks will shift insurance risks to taxpayers, cost jobs, lead to increased rates for bank customer service, make it harder for small borrowers to get loans and lessen community access to bank branches.

Too big to fail

With U.S. taxpayers still paying off hundreds of billions for the bailout of the savings and loan industry, the legislative and executive branches of the federal government might be expected to consider what bigger and bigger banking institutions mean for government's deposit insurance liability.

At a minimum, the trend toward bigger banks is creating a new class of "too-big-to-fail" financial institutions - banks that must be bailed out, regulators and politicians are certain to argue, to prevent a "domino" effect on the entire economy. These institutions will enjoy what amounts to a taxpayer guarantee of all their assets (not just customers' deposits). So, hidden in the merger documents creating these giant banks are huge new liabilities for taxpayers and tons of free insurance for large depositors and shareholders of these too-big-to-fail institutions.

With the merger frenzy in full swing last year, President Clinton's newly appointed Federal Deposit Insurance Corporation (FDIC) Chairperson, Ricki Tigert Helfer, moved to cap the reserves that financial institutions pay into the government's bank insurance fund at $25 billion, just 1. …