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(Publishing Note: Pam Martens has provided written authorization to the diarist to reproduce this post in its entirety for the benefit of the Daily Kos community.)

Banks Are Still Failing At Ten Times the Pre-2008 Crash Rate
Pam Martens
Wall Street On Parade
A Citizen Guide to Wall Street
October 10, 2013
The
Before Wall Street took a bazooka loaded with credit default swaps and toxic mortgage securitizations and fired it directly at the heart of the U.S. economy, we had a very stable banking system. In the five years before the 2008 crash, only 10 banks failed in the United States. Let me repeat that: ten banks went belly up in the entire period between January 2003 through December 2007.
(Continued below the fold.)

(Continued from blockquote above.)

Since January 2008 through today, the Federal Deposit Insurance Corporation shows 487 banks have failed, with 22 failures just so far this year. With an average of two bank failures per year in the five years before the crash, that means banks are still failing at 10 times the pre-crash rate. But the numbers get worse from there.

While the FDIC shows 487 banks have failed, other data at the FDIC show that a total of 1,306 banks have disappeared since March 31, 2009, along with $1.5 trillion in deposits. The difference is that 819 banks or savings associations have merged, typically to survive. The missing deposits likely went to pay down debts, moved to uninsured money market funds, into the stock market or bond mutual funds to earn extra yield.

According to March 31, 2009 data from the FDIC, there were 8,246 FDIC insured institutions with total domestic deposits of $7.5 trillion. Four institutions, Bank of America, JPMorgan Chase, Wells Fargo & Co. and Citigroup, four institutions out of 8,246, controlled at that time 35 percent of all the insured domestic deposits.

Now fast forward to June 30, 2013. According to FDIC data, the 8,246 banks and savings institutions have melted away to a new total of 6,940. Bank of America, JPMorgan Chase, Wells Fargo & Co. and Citigroup, now control a combined $3.511 trillion in domestic deposits, a stunning 58.8 percent of all 6,940 U.S. banks’ domestic deposits of $5.966 trillion. The market share of these four giants has increased by an astonishing 24 percent in just 4 years.

But it gets even worse. Each of these four banks that have cumulatively gained a 24 percent increase in market share are the same banks charged by the Federal regulators in swindle after swindle against the American public. As many have long suspected, this data conclusively proves that crime pays on Wall Street.

The reason we continue to see a dramatic decline in total numbers of banks and savings institutions is that the regulations imposed on the community banks because of the wrongdoing of the big banks, is forcing many to merge with larger banks to be able to afford the dramatic increase in compliance costs.

Thank you, once again, Wall Street, for reminding us what a lopsided playing field we have in the United States.


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© 2013 Wall Street On Parade. Wall Street On Parade® is registered in the U.S. Patent and Trademark Office.

WallStreetOnParade.com is a public interest web site operated by Russ and Pam Martens to help the investing public better understand systemic corruption on Wall Street. Ms. Martens is a former Wall Street veteran with a background in journalism. Mr. Martens' career spanned four decades in printing and publishing management.


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(Publishing Note: While Consumer's Union has reminded us that "Switching Banks Is Still Challenging for Consumers," they have also provided lots of practical advice in terms of how to fight back against this travesty. Click on the link in the previous sentence to learn more. To assist folks in their efforts to keep their money on Main Street, CU has also published a document, titled: "Consumer Reports’ More Bank Fees Are Coming: How to Fight Back or Flee." Click on this second link in the paragraph to obtain a copy.)


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Comment Preferences

  •  Tip Jar (23+ / 0-)

    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

    by bobswern on Thu Oct 10, 2013 at 10:54:08 AM PDT

  •  That's why I bank at a credit union. (5+ / 0-)

    The big banks think that old Mr. Potter was the hero in It's a Wonderful Life!

    Women do 2/3 of the world's work, receive 10% of the world's income and own 1% of the means of production.

    by LibrErica on Thu Oct 10, 2013 at 11:01:45 AM PDT

    •  Some context is needed Bob... (2+ / 0-)
      Recommended by:
      bobswern, LibrErica

      From 2001 through 2008, interest rates were at historic lows.  while lending was going gangbusters.  Banking seemed to be so easy that anyone could do it.  

      The Chairman of the FDIC during this period was Donald Powell, a former Texas banker that alledgedly hated the FDIC.  He made significant reductions in force that severly weakend the FDIC's capability as a regulator and it's preparedness for any banking crisis.  Of course, banking became even easier without effective oversight.

      Then the real estate bubble burst.  Housing growth had been fueled by a mortgage payment vs. rent equation where the same rent could buy a much larger and more comfortable house.  Until housing prices collapsed and loan to value went upside down, and people were losing their jobs.  It was the proverbial perfect storm.

      Over the past 4 years, I've been involved in closing about 50 banks.  Most of them were smaller local banks and while there were some that had signs of corruption, most failed because of bad loans and most of those loans probably looked safe when the bank made them.  Few of these banks were over $1billion in asset size. Yes, the community banks suffered for the sins of the big banks.

      There were some bankers that saw that a bubble was growing and cleaned up their portfolios before the crash.  These were the banks that were stepping up and buying the failed banks at bargain prices.

      I have no fondness for the Too Big To Fail Banks and from anecdotal evidence I am convinced that they are also Too Big To Manage.

      I could also probably write a long essay on the many failures of Alan Greenspan and his contributions to the crash.  In particular, he kept interest rates low all the way through 2004 to insure he would not be blamed for 2 one term bushes.  He created an economic time bomb then retired and handed it off to Ben Bernanke with no doubt explicit instructions to not let it explode until w* was out of office.  We all know how that worked.

      My point is to demonstrate that a simple comparison of the number of bank closings during these two periods fails to consider the overall economic, political and regulatory environment in which they occurred and is extremely misleading.

      The republicons moan, the republicons bitch. Our rich are too poor and our poor are too rich. Ferguson Foont

      by Josiah Bartlett on Thu Oct 10, 2013 at 06:55:19 PM PDT

      [ Parent ]

  •  Another contributing factor: no new banks. (5+ / 0-)
    Recommended by:
    LibrErica, tofumagoo, FG, Jim P, Loge

    By way of the cantankerous but usually interesting Bank Lawyer Blog (written by former in-house counsel for a community bank) is this excerpt from American Banker:

    Since mid-2010 the total number of banks has fallen by 11.4%, by far the largest three-year drop since the mid-to-late 1990s, according to data from the Federal Deposit Insurance Corp.'s most recent Quarterly Banking Profile.

    Failures, mergers and charter consolidations have all played a role in the decline, but less so than in the prior three-year cycle. Twenty-three fewer banks failed between June 2010 and June 2013 than in the three years prior, and there were 107 fewer mergers in the most recent three-year span.

    What's really driven down the numbers of late is the lack of startups. No new banks have opened for business since mid-2011 and only 23 have come online since 2008, according to the FDIC. Contrast that with the five years leading up to the financial crisis, when an average of 156 new banks opened each year — or roughly one bank for every two that failed or were merged out of existence.

    •  And, then there are Democrats that acknowledge... (6+ / 0-)

      ...they're actually moderate, Reagan Republicans when it comes to the economic policies that they wholeheartedly support.

      Being someone who works as a technology vendor in the finance sector--with regard to how it facilitates transactions with Main Street--I can say from extensive personal/professional experience that it's very tough for small and mid-size banks to compete against large banks these days. It's, simply, a very uneven playing field, with the biggest banks having been given--to this day--extensive advantages and government/taxpayer tithes that simply aren't provided to the smaller and mid-sized banks.

      In fact, in this environment, it's virtually impossible to compete with big banks by any means other than seizing markets that the biggest banks are blowing off, since our government, to this day, fully encourages them to gamble their ill-gotten gains with the full faith and credit of taxpayer backstops.

      But, keep touting that Wall Street propaganda, JW...  

      "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

      by bobswern on Thu Oct 10, 2013 at 11:25:14 AM PDT

      [ Parent ]

      •  We live in a time of (3+ / 0-)
        Recommended by:
        bobswern, gooderservice, Johnny Q

        playing fields shaped like funnels siphoning everything but some escaping fumes into the tank of the .1%

        Yes, uneven.

        Trust, but verify. - Reagan
        Vote, but Occupy. - commonmass

        by Words In Action on Thu Oct 10, 2013 at 11:29:42 AM PDT

        [ Parent ]

      •  How is that wall street propaganda, exactly? (0+ / 0-)
        •  eh, never mind (0+ / 0-)

          I usually stay out of these diaries, since they're not terribly interesting or informative; not a mistake I'll make again.  

        •  Because, as usual, you misrepresent your... (1+ / 0-)
          Recommended by:
          aliasalias

          ...source, who's now working for a firm (a firm with which I'm familiar, by the way, since I do a lot of work in Texas) that maintains a list of large, blue chip banks. Furthermore, the particular blogger, who's work you're touting, is constantly appearing in front of audiences comprised of executives from large banks, too. (That's because he's spending a LOT of his professional time marketing his services to them.)

          But, this type of misrepresentation is common for you (at least in my posts).

          What I've stated, earlier in this thread, is the over-arching fact of the matter. Not some drivel from someone who earns a living contorting statistics to fit his status quo narrative.

          Typical of you in the threads of my comments...

          "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

          by bobswern on Thu Oct 10, 2013 at 11:48:47 AM PDT

          [ Parent ]

    •  how much of that is due to (0+ / 0-)

      higher capital requirements, either through regulations like Basel III or the demands of counterparties?  Most people would think higher reserves against money lent out would be a prudent measure, but it is also a barrier to entry.

      I think the article in question made some basic conceptual errors.  The choice of baseline, 2003-2007 is not very interesting.  It doesn't tell you the banking system was stable then; it tells you capital was easy to come by.  Too few banks were failing then.

      The wording of the deposits taken out of the commercial banking sector is confusingly worded - it reads like the banks absconded with it.  Indeed, if money markets are included as competitors for deposits, the concentration argument isn't very powerful.  While the big 4 undoubtedly have lots of political power, the particular risks associated with antitrust violations aren't there -- i'm not sure the ability to set price discipline is there.  The money market system has its own issues, but new fund offerings are in place, so there is entry to an at least adjacent market.  what that "means" is probably ambiguous and nuanced.

      I'd also be curious about geographic entry -- some banking functions do require physical presence, and many of the smaller banks are always adding and subtracting territory, and the proportion that is merger and that is flag planting would be interesting to suss out, intead of looking at top line figures.  

      As much as we may the big 4, there's nothing particularly noble or romantic about them.  In many cases, the loan quality was worse than the big guys, and the areas of finance they ignore are (or have been) products likely to be seen as predatory that they'd hurt the brand.  See above about the fact too few banks were failing during the run-up to the crash.

      Difficult, difficult, lemon difficult.

      by Loge on Thu Oct 10, 2013 at 12:06:03 PM PDT

      [ Parent ]

      •  This is absurd and hysterical, frankly... (1+ / 0-)
        Recommended by:
        aliasalias

        ...higher capital requirements? That's farcical. The only people playing games with higher capital requirements right now are the TBTF banks. It's a veritable STUDY in fraud, in fact. They're the ones with "issues" because they're gaming the requirements for reserves for their investments in derivatives. It's a running joke in the industry, in fact. The smaller players have negligible money in the derivatives markets, by comparison.

        ...read my previous post from Martens regarding how these four banks have been sucking all the money out of the FHLB network--this is money that was specifically earmarked for the smaller banks and mortgage lenders, as well!

        ...your anecdotal comments about the 2003-2007 period are kind of a tell (in terms of whereof you speak), since they're, essentially, meaningless! Banks "weren't failing then" because the entire real estate/mortgage marketplace was being pumped by various, documented frauds! (Primarily perpetrated by the biggest banks, I might add.)

        ...your third paragraph is simultaneously pointless and irrelevant...especially when one considers the advantages the large banks have at the Fed's Primary Dealer Window.

        ...your "geographic entry" commentary is comical, too, since entities like Goldman and Morgan Stanley had miniscule physical presence, but both qualified for "bank status" thanks to the largesse of gov't spending of taxpayer dollars.

        ...furthermore, you last paragraph is pure, unadulterated fecal matter--both misleading, like your entire comment, but even moreso than the balance of it--and, frankly, I don't know where/why/how you're making this stuff up, but that IS what you're doing and you might want to consider going long on toilet paper. I understand the Koch Bros. are having a sale on that.

        Really, one of the most fictional and absurd comment efforts I've seen in my posts in a long, long time. And, it's clear you went out of your way to waste time putting this forth for all to see. Based upon your statements, either you're just insulting the readership, or you're pathetically unaware of how much you don't know about what you're attempting to write about...or....well, I'm not going to go there...

        Have a great day!

        "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

        by bobswern on Thu Oct 10, 2013 at 12:48:32 PM PDT

        [ Parent ]

        •  Bob, the article itself (0+ / 0-)

          talks about "higher compliance costs."  I'm glad compliance costs are higher, and I'm glad that counterparties are taking close looks at the quality of assets banks have.  

          As far as the 2003-2007 date range, I didn't invent it as the comparison.  The article you quote did.  Of course banks weren't failing because the market was artificially inflated.  (low interest rates also mattered, not just malfeasance.)  That's exactly what I said.  But the 10x higher rate requires a baseline comparison of a very low rate.  You and Pam are not wrong, you just didn't finish the thought.

          The point about lack of entry actually complements your argument, however much you want to bash Johnny (something i've done myself, believe it or not), and he didn't say anything about it other than the author was cantankerous and sometimes interesting, which is also true of, I dunno, George Will.

          I don't actually have strong feelings about the specific topic of how or why the market is becoming more concentrated, and what that might mean.  It can be a function of systematic unfair advantage, absolutely, but there could also be different or additional stories to tell, and part of it is that often the boundaries of economic markets are fluid.  During the bubble, banks and non-deposit lenders were competing to issue home-loans; and funds attracted deposits that would otherwise have gone to insured deposits because they paid higher yields.  These were not good things as it happens.  But they also invite the question of what specific harms are we flagging when talking about economic concentration, and what specific policy response is warranted?  I'd like there to be less concentration from a political point of view, but the added barriers to entry in the form of higher compliance costs seem like good ones, and the suggestion of how to make larger banks not seem like better investments is distinctly lacking.  I'm guessing you don't trust the living will system, nor, arguably, does the market, but there are other economies of scale and advantages to diversification.  Nor do I weep for many of the smaller banks who have failed, since the flip side of large banks being evil is not other ones being good.  

          I'm actually glad to have read the article, because it did make me think.  I think it's more interesting than the narrow purpose for which you seem to have posted (to inflame passions.)  I thought the data that in Johnny's link also added to that picture.  I have no idea what justifies such a hostile response, but you can take your hostility and shove it up your fucking ass :)

          Difficult, difficult, lemon difficult.

          by Loge on Thu Oct 10, 2013 at 01:34:14 PM PDT

          [ Parent ]

  •  Full steam ahead (2+ / 0-)
    Recommended by:
    bobswern, gooderservice

    with the recovery, dammit!

    Trust, but verify. - Reagan
    Vote, but Occupy. - commonmass

    by Words In Action on Thu Oct 10, 2013 at 11:19:55 AM PDT

  •  This should be no surprise. (2+ / 0-)
    Recommended by:
    Eric Blair, bobswern

    They knew this in early 2010.

    Three words:

    Commercial. Real. Estate.

    http://www.gpo.gov/...

    Warren/3-D Print of Warren in 2016!

    by dov12348 on Thu Oct 10, 2013 at 11:59:03 AM PDT

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