1 15495 too big to fail banks get bigger after dodd-frank - cady north

8/3/2019 1 15495 Too Big to Fail Banks Get Bigger After Dodd-frank - Cady North

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Bloomberg Government 1

Too-Big-to-Fail Banks GetBigger After Dodd-Frank

BY CADY NORTH

SENIOR FINANCE POLICY ANALYST

M A R C H 1 8 , 2 0 1 1

To contact the author, e-mail: [email protected]


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TABLE OF CONTENTS

Section Page

Executive Summary .................................................................................................... 3

Introduction ................................................................................................................ 4

Table 1: Historic Ranking of Top Five Banks by Total Assets .................. 5

Historic Growth and Concentration of Banks ........................................................... 7

Chart 1: Banks and Assets of Deposit-Taking Institutions 1934-2010 ..... 7Chart 2: Assets of Insured Institutions as a Percentage of GDP.............. 8Chart 3: Assets of Insured Institutions and U.S. Inflation by Decade ...... 8

Concentration of Assets in the Top 10 Banks ......................................................... 10

Chart 4: Top 10 Bank Assets as Percentage of Total Bank Assets........ 10

Chart 5: Growth in Assets of Top 10 Banks Compared with GDP.......... 11

Bank Mergers in Normal Times ................................................................................ 12

Chart 6: History of Major Domestic Mergers in Top Four Banks ............ 13

Who Is Too Big to Fail?............................................................................................. 14

Designating Banks as Systemically Important ........................................ 14Designating Non-Banks as Systemically Important ............................... 15Consequences of Being Designated as Systemically Important............ 16

Controlling Too Big to Fail........................................................................................ 18

Setting Up Resolution Plans ..................................................................... 18

Limiting Mergers and Acquisitions........................................................... 20

Table 2: Ratio of Company Liabilities to Total Liabilities

in the Financial Sector............................................................................... 21Exception to Concentration Limit ............................................................. 21

Systemically Important Banks Multiply .................................................... 21

Conclusion................................................................................................................ 23

Appendices............................................................................................................... 24


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EXECUTIVE SUMMARY

This Bloomberg Government Study finds that the banking sector has become even

more concentrated since the 2008 financial crisis. Individual banks continue to grow in

asset size. If the growth rate of banks in the past is an indicator, the number of so-calledtoo-big-to-fail banks could increase by almost 40 percent over the next 15 years, putting

added strain on regulators.

The Dodd-Frank law, enacted in July 2010, seeks to limit growth in the banking

sector and remove risks that could destabilize the financial system. The size, scope and

connections among large financial institutions contributed to the financial crisis, according

to regulators.

The law aims to prevent banks from becoming too big to fail, so that the

government is not forced to spend taxpayer money to bail out the shareholders of large

banks and other financial companies in the event of crisis.1 The law establishes a

concentration limit that prohibits mergers of the largest firms. It also institutes a new

process for the orderly liquidation of any financial company whose failure could threaten

the economy.

This study shows:

The banking sector grew seven times faster than gross domestic product since the

beginning of the financial crisis. This growth has been concentrated in the largest

banks. As of December 2010, the top 10 banks in the U.S. held 77 percent of all

U.S. bank assets, compared to 55 percent of the total assets at the end of 2002.

Growth in total assets of banks in the U.S. has outpaced inflation every decade

since the 1930s, when total assets in the banking system were first recorded.

This study finds that the Dodd-Frank law includes a provision that could allow the

largest financial firms, even those subject to concentration limits, to grow even larger. That

could occur during a future crisis, when those firms will have the most flexibility to take

control of failed firms. As a result, large banks will continue to grow disproportionately to

other banks.

1Federal Support during the 2008 Financial Crisis totaled $4.7 trillion according to page 138 of the Special

Inspector General for TARP July 2009 Quarterly Report to Congress.http://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdfretrieved onMarch 11, 2011.
http://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdfhttp://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdfhttp://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdf


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INTRODUCTION

The notion of too big to fail is simple: A financial company's collapse could lead to

the failure of other firms, crippling the economy as they fall. Such a scenario was on the

minds of policymakers in March 2008 when the Federal Reserve helped finance themerger of Bear Stearns & Cos. with JPMorgan Chase & Co by purchasing $29 billion2 in

securities. A "sudden, unanticipated failure of Bear Stearns" could have led to a "vicious

circle of forced selling, increased volatility, and higher haircuts and margin calls," Fed

Chairman Ben S. Bernanke said in an August 2008 speech3 about the bailout. "The

broader economy could hardly have remained immune from such severe financial

disruptions." The term systemic risk is used to describe potential dangers that a large firm

could bring to the financial system if it failed.4

By September 2008, Lehman Brothers was on the brink of collapse along with

insurer American International Group Inc. Regulators refused to rescue Lehman, andpumped $185 billion5 into AIG. They approved applications from Goldman Sachs and

Morgan Stanley to become bank holding companies. These two firms were already using

government support available to bank holding companies, such as access to Fed lending

facilities and capital cushions.

The size of the government bailout, and the public backlash against it, led policy

makers to vow that they would never again bail out the largest banks with taxpayer

money.6

The financial crisis also provided opportunities for the largest banks. JPMorgan

took over the deposits of Washington Mutual Bank. Bank of America Corp purchased

Countrywide Financial Corp. and Merrill Lynch & Co, while Wells Fargo & Co. purchased

Wachovia Corp.

2According to page 140 of the Special Inspector General for TARP July 2009 Quarterly Report to Congress.

http://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdfretrieved onMarch 11, 2011.

3

http://www.federalreserve.gov/newsevents/speech/bernanke20080822a.htmretrieved on March 10, 20114

A firm that carries systemic risk is considered to have systemic importance, be systemically significant orsystemically risky. These terms are used interchangeably throughout this study.

5$89.5 + $20.1 + $28.1 + $47.5 = $185.2 according to according to page 140 of the Special Inspector

General for TARP July 2009 Quarterly Report to Congress.http://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdfand $47.5 billionin TARP fromhttp://www.treasury.gov/initiatives/financial-stability/investment-programs/AIG/Pages/default.aspxretrieved on March 11, 2011.

6http://www.whitehouse.gov/wallstreetreformretrieved on March 17, 2011.
http://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdfhttp://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdfhttp://www.federalreserve.gov/newsevents/speech/bernanke20080822a.htmhttp://www.federalreserve.gov/newsevents/speech/bernanke20080822a.htmhttp://www.federalreserve.gov/newsevents/speech/bernanke20080822a.htmhttp://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdfhttp://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdfhttp://www.treasury.gov/initiatives/financial-stability/investment-programs/AIG/Pages/default.aspxhttp://www.treasury.gov/initiatives/financial-stability/investment-programs/AIG/Pages/default.aspxhttp://www.treasury.gov/initiatives/financial-stability/investment-programs/AIG/Pages/default.aspxhttp://www.treasury.gov/initiatives/financial-stability/investment-programs/AIG/Pages/default.aspxhttp://www.whitehouse.gov/wallstreetreformhttp://www.whitehouse.gov/wallstreetreformhttp://www.whitehouse.gov/wallstreetreformhttp://www.whitehouse.gov/wallstreetreformhttp://www.treasury.gov/initiatives/financial-stability/investment-programs/AIG/Pages/default.aspxhttp://www.treasury.gov/initiatives/financial-stability/investment-programs/AIG/Pages/default.aspxhttp://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdfhttp://www.federalreserve.gov/newsevents/speech/bernanke20080822a.htmhttp://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdf


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In each case, the company acquiring a failed institution was already one of the top

five largest banks, by total assets, and grew bigger as a result. In all these examples, the

government, through monetary intervention, ensured the protection of banks that were too

big to fail, and in the process made the largest banks even larger. The result of these

merger activities on the ranking of banks by total assets is shown in Table 1. This tablealso shows that the top five banks make up 59 percent of all assets in the commercial

banking system, according to Fed data.

Table 1: Historic Ranking of Top Five Banks by Total Assets7

When a bank fails, the assets do not disappear. In most cases, one or more

financial institutions agree to take over the deposits, outstanding loans and other assets ofthe failed firm. Regulators orchestrate the purchase. The Federal Deposit Insurance

Corporation maintains a database9 of bank failures, describing the insured banks that

purchase or take over assets. One way the largest firms are able to grow even larger is

through the purchase of failed banks.

7According to Bank Holding Company Peer Report data from the Federal Financial Institutions Examination

Council found athttp://www.ffiec.gov/nicpubweb/content/BHCPRRPT/BHCPR_Peer.htmretrieved on Feb. 4,2011. Presented as a ratio of assets to total assets of insured institutions as published by Federal Flow ofFunds Data L.109http://www.federalreserve.gov/releases/z1/Current/data.htmretrieved on Mar. 14, 2011.

8Taunus Corporation is the bank holding company for Deutsche Bank Trust Company Americas.

9FDIC Bank Failures in Briefhttp://www.fdic.gov/bank/historic/bank/index.htmlretrieved on Feb. 7, 2011.

Ranking by Percentage of Total Banking Assets Over Five Years

2006 % 2007 % 2008 % 2009 % 2010 %

Citigroup17

Citigroup18

JPMorgan15 Bank of

America16 Bank of

America16

Bank of

America

13 Bank of

America

14Citigroup

14JPMorgan

14JPMorgan

15

JPMorgan12

JPMorgan13 Bank of

America13

Citigroup13

Citigroup14

Wachovia6

Wachovia7 Wells

Fargo9 Wells

Fargo9 Wells

Fargo8

WellsFargo

4 TaunusCorp.

8

6HSBC

3 GoldmanSachs

6 GoldmanSachs

6

Total 52 Total 58 Total 54 Total 58 Total 59
http://www.ffiec.gov/nicpubweb/content/BHCPRRPT/BHCPR_Peer.htmhttp://www.ffiec.gov/nicpubweb/content/BHCPRRPT/BHCPR_Peer.htmhttp://www.ffiec.gov/nicpubweb/content/BHCPRRPT/BHCPR_Peer.htmhttp://www.federalreserve.gov/releases/z1/Current/data.htmhttp://www.federalreserve.gov/releases/z1/Current/data.htmhttp://www.federalreserve.gov/releases/z1/Current/data.htmhttp://www.fdic.gov/bank/historic/bank/index.htmlhttp://www.fdic.gov/bank/historic/bank/index.htmlhttp://www.fdic.gov/bank/historic/bank/index.htmlhttp://www.fdic.gov/bank/historic/bank/index.htmlhttp://www.federalreserve.gov/releases/z1/Current/data.htmhttp://www.ffiec.gov/nicpubweb/content/BHCPRRPT/BHCPR_Peer.htm


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Larger firms have more capital and flexibility to absorb troubled institutions. In many

cases, banks also have a business incentive to acquire failed firms. After the crisis, Bank

of America became the largest bank by total assets due to its mergers, pushing JPMorgan

to second largest. Citigroup, without any mergers, moved to third. Wells Fargo, which

acquired Wachovia, moved to fourth. Goldman Sachs, which was approved by the Fed asa bank holding company, moved to fifth.

This study looks at the historic growth patterns of the banking sector and how the

Dodd-Frank law could affect this growth in the future.


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HISTORIC GROWTH AND CONCENTRATION OF BANKS

In 1934, the first year the FDIC began recording banking statistics, there were

more than 14,000 insured banks, with $46.5 billion in total assets9.From 1934 to 1975, on

average there were 13,500 insured banks each year. In the 1980s the number of banksstarted to decline. See Chart 1 for an overview of the historic growth in the banking sector.

Chart 1: U.S. Banks and Total Assets of Deposit-Taking Institutions 1934-201010

The U.S. began to experience an increase in bank failures during the savings-and-

loan crisis of the 1980s. The number of banks declined by 4,466, due to failures and

mergers over a 10-year period between 1985 and 1995, according to FDIC data.9 The

decline continued over the next 15 years at a slower rate.

At the same time, there were more assets in the banking system than ever before.

The growth in total assets of insured institutions outpaced inflation every decade since

banking asset data has been recorded, and since the 1990s has outpaced GDP. It took 47

years for the assets of insured banks to reach $2 trillion in 1981, as Chart 1 shows. Total

banking assets reached $10 trillion 25 years later in 2006 with just half the number of

institutions, 7,401.9

10According to FDIC data. The number of commercial deposit institutions and total assets found at

http://www2.fdic.gov/hsob/hsobRpt.aspretrieved on Feb. 7, 2011. See Appendix 2 for the data from 1975 to2010. Figures for 2010 retrieved on Mar. 14, 2011, fromhttp://www2.fdic.gov/SDI/main4.asp.

0

2

4

6

8

10

12

14

16

0

2

4

6

8

10

12

14

1934

1938

1942

1946

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

NumberofBanks(inthou

sands)

TotalAssets(trillionsofdollars)

Number of

CommercialBanks

Total Assets
http://www2.fdic.gov/hsob/hsobRpt.asphttp://www2.fdic.gov/hsob/hsobRpt.asphttp://www2.fdic.gov/SDI/main4.asphttp://www2.fdic.gov/SDI/main4.asphttp://www2.fdic.gov/SDI/main4.asphttp://www2.fdic.gov/SDI/main4.asphttp://www2.fdic.gov/hsob/hsobRpt.asp


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Chart 2: Assets of Insured Institutions as a Percentage of GDP11

Chart 2 shows the total assets of insured banks as a percentage of nominal GDP.

Between 1940 and the early 1990s, there were some periods where assets grew faster

than GDP and some periods of slower growth. Total assets averaged 61 percent of GDP.

Since the 1990s, the banking sector grew faster than GDP. Chart 1 shows the number of

banks decreased during this period.

Chart 3: Assets of Insured Institutions and U.S. Inflation by Decade12

11Assets from FDIC data (see footnote 9) divided by nominal GDP compiled by Bloomberg.

12Calculated compound annual growth rate by decade using FDIC insured commercial bank total assets and

Consumer Price Index Data from the Bureau of Labor Statistics.ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txtretrieved on Mar. 14, 2011.

40%

45%

50%

55%

60%

65%

70%

75%

80%85%

90%

1940

1943

1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Inflation Rate By Decade

Bank Asset Growth Rate ByDecade
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txtftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txtftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt


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The 1950s and the 1980s experienced the highest growth rate in banking assets at

8.06 percent and 11.35 percent, as Chart 3 shows. In those decades, inflation was 5.07

percent and 7.36 percent.

Assets in the banking sector grew significantly, outpacing GDP and CPI, creating a

more concentrated banking sector with fewer banks. While some of the decrease in banks

is a result of normal merger and acquisition activity, bank failures during crises can be a

strong catalyst for bank consolidation, as data shows.

Consider the rapid growth of U.S. Bank, National Association, owned by U.S.

Bancorp in Minneapolis, Minnesota. U.S. Bancorp had $237.6 billion in assets in 200713.

The bank subsequently acquired 13 failed banks14, the latest in January 2011, boosting its

asset size to $307.8 billion12 as of December 2010. It is now the 10th largest bank holding

company in the U.S,15 and is considered systemically significant under the Dodd-Frank

law because of its asset size.16

13Total Assets compiled by Bloomberg.

14According to the FDIC Failed Bank listhttp://www.fdic.gov/bank/individual/failed/banklist.htmlretrieved on

Feb. 25, 2011.

15According tohttp://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspx, retrieved on Mar. 14, 2011.

16Regulators usually can limit normal mergers and acquisitions by systemically significant financial

companies. U.S. Bancorp would have been able to make these acquisitions because the acquired firms werefailed institutions. Details on these provisions are described later in this study.
http://www.fdic.gov/bank/individual/failed/banklist.htmlhttp://www.fdic.gov/bank/individual/failed/banklist.htmlhttp://www.fdic.gov/bank/individual/failed/banklist.htmlhttp://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspxhttp://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspxhttp://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspxhttp://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspxhttp://www.fdic.gov/bank/individual/failed/banklist.html


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CONCENTRATION OF ASSETS IN THE TOP 10 BANKS

As the number of banks declined during normal times and during crises, existing

banks absorbed the assets. This concentrated a greater share of risk among fewer banks.

In 2002, the assets of the top 10 banks made up 55 percent of the total assets of

insured institutions, this study found. In 2006, before the financial crisis, the top banks

made up 68 percent of total assets. Post-crisis, at the end of 2010, the top 10 banks

comprised 77 percent of total banking assets. Chart 4 illustrates the growth rate of the top

10 banks' assets over the past nine years.

Chart 4: Top 10 Bank Assets as a Percentage of Total Bank Assets17

The growth in the top 10 banks' assets also outpaced GDP growth, according to

our analysis. Since the start of the financial crisis, nominal GDP grew 4 percent. Over that

same period,18 the assets of the top 10 banks grew 29 percent, more than seven times

faster than GDP. Chart 5 illustrates how the growth rate of the GDP relates to the growth

rate of the assets of the top 10 banks over nine years.

17Assets of the top 10 banks from Federal Financial Institutions Examination Council, Bank Holding Company

Peer Group Average Reports.http://www.ffiec.gov/nicpubweb/content/BHCPRRPT/BHCPR_Peer.htmretrieved on Feb. 10, 2011. Total assets from Historic Federal Flow of Funds Data Table L.109http://www.federalreserve.gov/releases/z1/Current/data.htm

18From the end of 2007 to the end of 2010.

$-

$3

$6

$9

$12

$15

2002 2003 2004 2005 2006 2007 2008 2009 2010

Trillions

Total Assets CommercialBanking Sector

Assets of Top 10 Banks

55%57%

65%

68%65%

77%74%

64%72%
http://www.ffiec.gov/nicpubweb/content/BHCPRRPT/BHCPR_Peer.htmhttp://www.ffiec.gov/nicpubweb/content/BHCPRRPT/BHCPR_Peer.htmhttp://www.ffiec.gov/nicpubweb/content/BHCPRRPT/BHCPR_Peer.htmhttp://www.federalreserve.gov/releases/z1/Current/data.htmhttp://www.federalreserve.gov/releases/z1/Current/data.htmhttp://www.federalreserve.gov/releases/z1/Current/data.htmhttp://www.ffiec.gov/nicpubweb/content/BHCPRRPT/BHCPR_Peer.htm


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Chart 5: Growth in Assets of Top 10 Banks Compared with GDP19

19Nominal GDP compiled by Bloomberg. For total assets, see footnote 9.

$-

$2

$4

$6

$8

$10

$12

$14

$16

2002 2003 2004 2005 2006 2007 2008 20092010

Trillions Assets of Top 10 Banks

GDP


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BANK MERGERS IN NORMAL TIMES

Banks grow during normal times by gathering new customers and deposits and

seeking opportunities for mergers and acquisitions of other healthy firms. Such merger

activity has affected the concentration of assets in the banking sector, particularly amongthe top four banks. Chart 6 on the next page shows the chronological history of major

bank mergers and acquisitions pre- and post-crisis, and the effect on the assets of the

banks involved.

In the past 10 years, there have been several "mega-mergers" of large, healthy

firms, which contributed to a higher concentration of assets in fewer firms, as shown in

Chart 4.

Although the existing size and potential risk to the financial system was considered

by regulators, all the mergers were approved. When JPMorgan Chase acquired BankOne

Corp. in 2004, for instance, then-Fed Chairman Alan Greenspan said, "Although these are

very large institutions, they are quite diversified. Hence, they don't create the type of

threat of systemic problems which could readily be the case where there is significant

concentration. Nonetheless we do continuously monitor that issue.''20

20As reported by Bloomberg July 21, 2004, "Fed's Greenspan Comments on Merger of J.P. Morgan and Bank

One retrieved on Feb. 28, 2011.


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Bloomberg Government

Chart 6: History of Major Domestic Mergers in Top Four Banks21

21Total assets compiled by Bloomberg. Merger history from the Federal Financial Institutions Examination Council "institutions acquired" page for each financial institution

http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspxand the FDIC "historic profile" pages for each financial institutionhttp://www2.fdic.gov/idasp/main_bankfind.aspretrievedMar. 14, 2011. Citigroup merger information from the company's 2005 10-K reporthttp://www.citigroup.com/citi/fin/data/k05c.pdf?ieNocache=808retrieved on Mar. 15, 2011.
http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspxhttp://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspxhttp://www2.fdic.gov/idasp/main_bankfind.asphttp://www2.fdic.gov/idasp/main_bankfind.asphttp://www2.fdic.gov/idasp/main_bankfind.asphttp://www.citigroup.com/citi/fin/data/k05c.pdf?ieNocache=808http://www.citigroup.com/citi/fin/data/k05c.pdf?ieNocache=808http://www.citigroup.com/citi/fin/data/k05c.pdf?ieNocache=808http://www.citigroup.com/citi/fin/data/k05c.pdf?ieNocache=808http://www2.fdic.gov/idasp/main_bankfind.asphttp://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspx


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WHO IS TOO BIG TO FAIL?

Such monitoring is now the responsibility of the Financial Stability Oversight

Council, a new panel of regulators created by the Dodd-Frank law. It has three main

functions: identify risks to the financial system, eliminate shareholder and creditors'expectations that the government will back a financial company if it fails, and respond to

threats to the stability of the financial system.

One of the ways the council will discover risks is by reviewing financial data and

identifying companies that could negatively affect the U.S. financial system if they fail.

This type of risk is called systemic risk. Regulators will look at the asset size of the

institution and how connected the institution is to other large financial firms through

contracts, subsidiaries and other financial dealings. The larger the firm, the more potential

there is for systemic risk.

The oversight council has 10 voting members, including nine financial regulators

and a presidential appointee. The council can place a "systemically significant"

designation on any company that derives 85 percent or more of adjusted gross income

from financial activities.22 The council uses various ways to designate a bank and a non-

bank financial company as systemically significant.

Designating Banks as Systemically Important

Banks get an automatic systemic designation based on their asset size. This

method affects only bank holding companies.23 Any bank holding company with $50 billion

or more in assets is considered systemically risky. At present 35 bank holding companies

have $50 billion or more in assets. While this asset threshold is not automatically adjusted

for inflation from year to year, regulators have the authority to adjust it.

For a full list of the institutions qualifying as of December 2010, see Appendix 1.

22The process for designating a systemically significant institution is different for banks and non-bank financial

companies, and is explained later in this section.

23A bank holding company owns or controls one or more banks and must report consolidated financial data

for all of its assets and liabilities. Bank of America, JPMorgan Chase, and Wells Fargo are examples of bankholding companies. These holding companies are regulated by the Fed, while individual banks are regulatedby the FDIC (state chartered banks that are not members of the Fed) or Office of the Comptroller of theCurrency (national banks), or National Credit Union Administration (credit unions).


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Designating Non-Banks as Systemically Important

Financial institutions such as investment houses, hedge funds or insurance firms

could pose risks to the economy. For instance, AIG, a large insurance firm, had enough

outstanding insurance contracts and derivatives that its failure would have createdproblems with a significant number of corporate, government and commercial clients

across the U.S. That is why the Dodd-Frank law allows the oversight council to designate

such non-banks as systemically important.

The council will collect data and evaluate a firm's potential threats to the financial

system and its probability of failure. The council will look at:

1. Size; measurement of assets, liabilities or other ways to calculate

a company's size.

2. Interconnectedness; the number of outstanding contracts with other financial

institutions or the federal government.3. The lack of substitutes for the products the company offers.

4. Leverage; the ratio of a company's debt to equity capital.

5. Liquidity; both the cash on hand and the ease at which a firm's assets can be

converted to cash.

6. Whether the company has a federal regulator.


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The Dodd-Frank law gives the Financial Stability Oversight Council authority to

designate non-bank firms as systemically significant using these parameters. The decision

requires agreement by two-thirds of the members, and an affirmative vote by the Treasury

Secretary. That gives veto authority to the Treasury Secretary, who is appointed by the

president with Senate confirmation, and could insert politics into the process. The numberof non-bank financial companies that could be designated by regulators as systemically

significant has not been disclosed.

On Jan. 26, 2011, the oversight council proposed rules implementing its decision-

making process.24 The rules did not disclose the statistical thresholds for non-banks that

could become systemically important. The council has stated it will use different metrics

for different industries, depending on economic conditions. On Feb. 11, 2011, the Fed

released proposed rules designating a bank or non-bank financial firm as "significant" if it

has $50 billion or more in total consolidated assets or had been designated by the council

as systemically important.25

These rules are imprecise for a reason. Systemic risk can arise in a hedge fund

differently than in an insurance firm. The flexible rules give the government more

discretion to regulate firms when market conditions change or new risks in the financial

system become evident. This could create uncertainty for firms trying to comply with the

new requirements.

Consequences of Being Designated Systemically Important

Firms carrying the systemically important designation will be subject to additionaloversight by regulators. They will be required to hold a yet-to-be-determined amount of

additional collateral in reserve and limit risky activities. The Fed notes in its February

proposed rule25 that relationships between firms that are defined as "significant" and

"other information" may determine the scope of additional regulation. Regulators have

some discretion to adjust the level of enhanced supervision for these too-big-to-fail firms,

though all will have to supply additional data and pay more in fees.

The law may also affect companies' growth patterns. During times of normal

economic growth, banks grow by gaining new customers or merging with other firms.

During times of recession or market downturns, banks have the opportunity to purchasefailed firms and grow.

24http://www.treasury.gov/initiatives/Documents/Nonbank%20NPR%20final%2001%2013%2011%20formatted

%20for%20FR.pdfretrieved on Mar. 17, 2011.

25http://edocket.access.gpo.gov/2011/pdf/2011-2978.pdfretrieved on Mar. 17, 2011.
http://www.treasury.gov/initiatives/Documents/Nonbank%20NPR%20final%2001%2013%2011%20formatted%20for%20FR.pdfhttp://www.treasury.gov/initiatives/Documents/Nonbank%20NPR%20final%2001%2013%2011%20formatted%20for%20FR.pdfhttp://www.treasury.gov/initiatives/Documents/Nonbank%20NPR%20final%2001%2013%2011%20formatted%20for%20FR.pdfhttp://www.treasury.gov/initiatives/Documents/Nonbank%20NPR%20final%2001%2013%2011%20formatted%20for%20FR.pdfhttp://edocket.access.gpo.gov/2011/pdf/2011-2978.pdfhttp://edocket.access.gpo.gov/2011/pdf/2011-2978.pdfhttp://edocket.access.gpo.gov/2011/pdf/2011-2978.pdfhttp://edocket.access.gpo.gov/2011/pdf/2011-2978.pdfhttp://www.treasury.gov/initiatives/Documents/Nonbank%20NPR%20final%2001%2013%2011%20formatted%20for%20FR.pdfhttp://www.treasury.gov/initiatives/Documents/Nonbank%20NPR%20final%2001%2013%2011%20formatted%20for%20FR.pdf


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The Dodd-Frank law requires banks and systemically significant non-bank financial

institutions to create resolution and credit exposure reports, providing a road map to help

regulators liquidate firms.

The law also imposes concentration limits, restricting mergers of the largest firms if

the merger would concentrate more than 10 percent of all banking liabilities in one firm.

Regulators can provide an exception for the acquisition of failed firms.26 This is a key

provision that we will focus on in this study.

26See Appendix 3 for the Dodd-Frank law text related to this provision.


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CONTROLLING TOO BIG TO FAIL

Regulators will designate which firms are systemically important to the financial

system, subjecting them to stricter supervision, capital standards and leverage limits.27

There are two ways regulators can limit the size or risk of a company that we focus on inthis study: setting up orderly liquidation plans backed by a fund, and limiting mergers and

acquisitions.

Setting up Resolution Plans

Prior to the enactment of Dodd-Frank, assets of a failed firm were liquidated

inconsistently, depending on the type of financial institution. Banks, insurance companies

and broker-dealers were all treated in different ways, and failures were handled by

different regulators, which complicated the resolution of the large and complex financial

institutions that failed during the crisis of 2008.

The law now requires banks and systemically significant non-bank financial

institutions to provide periodic resolution and credit exposure reports to help regulators

"wind down" firms. These reports will be in place at all times so that during a crisis, a

liquidation road map already exists. Financial firms will identify all clients, owners, assets,

liabilities and credit exposure to other firms that are systemically significant. Systemically

significant banks must limit their credit exposure to any one company to an amount less

than 25 percent of outstanding stock of the company.28 This limitation will change

depending on the value of a company's outstanding loans, contracts and guarantees with

the bank and the value of its outstanding stock.

If a firm is on the brink of failure, regulators will decide if a resolution plan will be

implemented. The FDIC will be appointed as "receiver" and will be in charge of carrying

out the liquidation of the firm. Prior to Dodd-Frank, the FDIC had the authority to resolve

only insured banks.

Resolution plans will include:

1. Priority of payments to creditors.

2. Authority to continue operations for paying services.

3. The treatment of contingent claims such as derivatives.4. The distribution of proceeds from the liquidation of the firm and its subsidiaries.

27These requirements are termed "prudential requirements" in the Dodd-Frank law.

28Further defined in Dodd-Frank as capital stock plus capital surplus, which includes the value of outstanding

common and preferred shares as well as any other equity not included in outstanding share value.


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This will ensure a "rapid and orderly" liquidation of a firm in the event of financial

stress or failure, according to Dodd-Frank. Firms would identify and sell assets to other

firms rather than use a long, formal bankruptcy process. The FDIC uses a similar

liquidation process for failed banks, auctioning off assets and deposits to a bank with the

most qualified bid. Since one regulator will manage the process for all financialinstitutions, creditors, bondholders and shareholders can expect uniformity in the way

their accounts, assets and deposits are prioritized for liquidation, regardless of the type

of institution.

In addition to requiring firms to create resolution plans, the FDIC will set up an

Orderly Liquidation Fund to recoup government costs of winding down failed firms. Similar

to the Federal Deposit Insurance Fund, the Orderly Liquidation Fund will be financed by

risk-based assessments, or fees the FDIC will charge systemically important institutions

(both banks and non-banks) to cover the costs of liquidation. Costs of liquidation could

include setting up a shell company29 to continue operations of the failed firm, estimating

the value of assets of liabilities, conducting auctions that allow other firms to bid on

purchasing part or all of the failed firm, and writing off the losses related to the failure.

This will cost $19.5 billion over the next 10 years, according to President Barack

Obama's fiscal 2012 budget proposal.30 By law, the costs of resolving failed institutions

will be recovered in full by the systemically risky firms after the liquidation is completed.

The net cost of orderly liquidation over the budget period is due to the fact that cost

recovery occurs in the years following liquidation.

The lack of funding and authority to continue the operations of the failed Lehman

Brothers Holdings, Inc. until regulators could properly sell off the assets contributed to

significant market losses and severe panic among shareholders, creditors and

counterparties, according to regulators.31

The goal of these requirements is to prevent panic in the financial markets by

providing creditors and shareholders with a road map for winding down the problem

company and selling the assets to other financial institutions.

29Known as a bridge financial company in Dodd-Frank.

30Page 27, Fiscal Year 2012 Budget of the U.S. Government Analytical Perspectives.

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/spec.pdfretrieved on Feb. 24, 2011.

31According to page 4209 of the FDIC's Interim Final Rule on Orderly Liquidation Authority

http://www.fdic.gov/regulations/laws/federal/2011/11finalJan25.pdf, retrieved on Mar. 8, 2011.
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/spec.pdfhttp://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/spec.pdfhttp://www.fdic.gov/regulations/laws/federal/2011/11finalJan25.pdfhttp://www.fdic.gov/regulations/laws/federal/2011/11finalJan25.pdfhttp://www.fdic.gov/regulations/laws/federal/2011/11finalJan25.pdfhttp://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/spec.pdf


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Limiting Mergers and Acquisitions

Although the systemic risk designation depends largely on the dollar amount of

assets held by a financial firm, regulators plan to use total liabilities to calculate the

concentration limit mandated in the Dodd-Frank law.

32

This prohibits firms from acquiringother companies if the transaction exceeds 10 percent of the aggregate consolidated

liabilities of all financial companies.33 This is an unprecedented way for regulators to limit

the growth of the largest financial companies.

This limit is likely to affect only the top four banks, according to a study released by

the Financial Stability Oversight Council on Jan. 18, 2011: Bank of America, JPMorgan,

Citigroup and Wells Fargo. 34

These banks currently hold 3.03 to 5.46 percent of the aggregate liabilities of all

financial companies, according to data compiled by Bloomberg and Federal Flow of Funds

data.35 At the current level of liabilities in the financial sector, Bank of America would haveto double its liabilities with a single acquisition before the legal concentration limit could

prevent a merger.

The immediate limitation imposed under the concentration policy is that any of the

top three banks would clearly be prohibited from merging with one another. Each bank

could continue to grow larger by acquiring smaller firms, as long as the activity did not

result in the acquiring firm reaching the 10 percent liability limit.

The following table shows how the ratio of company liabilities to total liabilities in

the financial sector has changed over the past five years.

32

Section 622 of the Dodd-Frank law retrieved on Feb. 10, 2011.http://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=111_cong_public_laws&docid=f:publ203.111.pdf


34Study and Recommendations Regarding Concentration Limits on Large Financial Companies

http://www.treasury.gov/initiatives/Documents/Study%20on%20Concentration%20Limits%20on%20Large%20Firms%2001-17-11.pdfretrieved on Feb. 22, 2011.

35Company Liabilities Compiled by Bloomberg, Total Liabilities of the Financial Sector found in Section L.1

Credit Market Debt Outstanding line 33, Federal Reserve Flow of Fundshttp://www.federalreserve.gov/RELEASES/z1/Current/z1r-4.pdfretrieved on Feb. 28, 2011.
http://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=111_cong_public_laws&docid=f:publ203.111.pdfhttp://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=111_cong_public_laws&docid=f:publ203.111.pdfhttp://www.treasury.gov/initiatives/Documents/Study%20on%20Concentration%20Limits%20on%20Large%20Firms%2001-17-11.pdfhttp://www.treasury.gov/initiatives/Documents/Study%20on%20Concentration%20Limits%20on%20Large%20Firms%2001-17-11.pdfhttp://www.treasury.gov/initiatives/Documents/Study%20on%20Concentration%20Limits%20on%20Large%20Firms%2001-17-11.pdfhttp://www.federalreserve.gov/RELEASES/z1/Current/z1r-4.pdfhttp://www.federalreserve.gov/RELEASES/z1/Current/z1r-4.pdfhttp://www.federalreserve.gov/RELEASES/z1/Current/z1r-4.pdfhttp://www.treasury.gov/initiatives/Documents/Study%20on%20Concentration%20Limits%20on%20Large%20Firms%2001-17-11.pdfhttp://www.treasury.gov/initiatives/Documents/Study%20on%20Concentration%20Limits%20on%20Large%20Firms%2001-17-11.pdfhttp://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=111_cong_public_laws&docid=f:publ203.111.pdf


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Table 2: Ratio of Company Liabilities to Total Liabilities in the Financial Sector29

2006 2007 2008 2009 2010

Bank of America 3.95% 4.29% 4.22% 5.24% 5.46%

JPMorgan Chase 3.69% 3.94% 5.16% 4.91% 5.20%

Citigroup 5.27% 5.67% 4.61% 4.48% 4.68%

Wells Fargo 1.30% 1.44% 3.11% 2.97% 3.03%

Even if the top four banks will have more difficulty conducting mergers, the dozens

of other large financial companies designated as systemically important that are not close

to meeting the concentration limit will still be allowed to engage in normal merger

activities, with oversight from financial regulators.

Exception to Concentration Limit36

While the concentration limits could complicate some mergers during times of

normal economic growth, large banks can continue to grow by acquisition, especially

during a future financial crisis. The law allows regulators to provide an exemption to the

concentration limit if the financial institution is acquiring a bank that is in default or in

danger of default.37 The council proposed in its Jan. 18 study to expand this exemption to

allow the acquisition of non-bank financial companies as well as banks.

During a future financial crisis, financial institutions will submit bids to purchasethe assets of failed or failing firms, and the banking sector may experience the same type

of merger activities that took place after 2008. The largest banks will have the most

flexibility to acquire failed institutions, further fueling their growth. More and more banks

will be designated systemically risky each year because of merger activities during normal

times and times of economic distress.

Systemically Important Banks Multiply

At present 35 bank holding companies have assets of $50 billion or more.However, the number of banks that will become systemically important will grow over the

coming years, as the banking sector grows. We calculate that by 2025 some


37Section 622 of the Dodd-Frank law retrieved on Feb. 10, 2011.

http://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=111_cong_public_laws&docid=f:publ203.111.pdf
http://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=111_cong_public_laws&docid=f:publ203.111.pdfhttp://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=111_cong_public_laws&docid=f:publ203.111.pdfhttp://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=111_cong_public_laws&docid=f:publ203.111.pdf


22/26


13 new "systemically important" banks will require additional regulation. This represents a

nearly 40 percent increase. We calculate this by applying a 7.46 percent annual growth

rate38 to the list of current financial holding companies below the $50 billion threshold. For

instance, TCF Financial Corp had assets totaling $18.3 billion as of Dec. 31, 2010. Using

the 7.46 percent annual growth rate, we calculate that it will have total assets of $53.9billion by 2025 and will be systemically important under current definition39.

Unless financial regulators adjust the asset threshold periodically for inflation, it is

unclear whether regulators will have the resources, staffing and expertise to do their jobs

as the number of those that are "too big to fail" grows. Regulators could adjust the

$50 billion threshold under the Dodd-Frank law, which has not been discussed.

38Compound Annual Growth Rate of assets calculated for the years 1995 to 2010 = ((14402.3/4498.5)

(1/15)-1)

= 7.46 percent. Assets taken from Federal Reserve Flow of Funds Datahttp://www.federalreserve.gov/releases/z1/Current/data.htmretrieved on Mar. 14, 2011.

39Multiplied the current assets of TCF Financial by 7.046 percent each year for 15 years = 18.34 * 1.0746

15=

53.96
http://www.federalreserve.gov/releases/z1/Current/data.htmhttp://www.federalreserve.gov/releases/z1/Current/data.htmhttp://www.federalreserve.gov/releases/z1/Current/data.htm


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CONCLUSION

Dodd-Frank does not prevent firms from becoming larger. We can see from history

that banks will continue to grow. Consolidation is an unstoppable trend.

Growth in banking assets outpaced inflation, despite several economic downturns

over the past 70 years, according to historic data. Since the 1990s, growth in banking

assets of all insured institutions outpaced GDP, and the growth rate of the top 10 banks

outpaced GDP growth. The Dodd-Frank law's limits on acquisitions allow plenty of leeway

for even the largest banks to continue growing, merging and taking over other banks. As a

result, "too big to fail" will remain a concern in the financial system despite the goals of the

financial overhaul effort.

As shown in this study, financial companies may take advantage of a future

financial crisis to purchase failed banks below market prices and grow in size. Dodd-Frank

allows regulators to provide an exemption to the 10 percent concentration limit to allow

this type of merger activity.

We cannot know whether policymakers will cave in to the temptation to bail out

"too big to fail" firms until another financial crisis happens. How regulators choose to

respond to a future crisis will matter more than the current regulatory authority provided in

Dodd-Frank. Orderly liquidation plans, capital requirements and leverage limits may

provide some tools necessary to allow large institutions to fail without bringing down the

financial system. To succeed, regulators will need to allocate resources to oversee more

systemically important banks each year and adapt to the changing financial services

marketplace.


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APPENDIX 1: BANK HOLDING COMPANIES WITH

$50 BILLION OR MORE IN ASSETS40

Institution Name Total Assets 12/31/2010

in thousands of dollarsBANK OF AMERICA CORPORATION $2,268,347,377

JPMORGAN CHASE & CO. $2,117,605,000

CITIGROUP INC. $1,913,902,000

WELLS FARGO & COMPANY $1,258,128,000

GOLDMAN SACHS GROUP, INC., THE $911,330,000

MORGAN STANLEY $807,698,000

METLIFE, INC. $730,905,863

TAUNUS CORPORATION $372,556,000

HSBC NORTH AMERICA HOLDINGS INC. $343,644,280

U.S. BANCORP $307,786,000

PNC FINANCIAL SERVICES GROUP, INC., THE $264,414,112

BANK OF NEW YORK MELLON CORPORATION $247,222,000

CAPITAL ONE FINANCIAL CORPORATION $197,503,411

TD BANK US HOLDING COMPANY $176,972,361

SUNTRUST BANKS, INC. $172,875,298

ALLY FINANCIAL INC. $172,011,000

STATE STREET CORPORATION $158,890,975

BB&T CORPORATION $157,081,396

AMERICAN EXPRESS COMPANY $146,005,718

REGIONS FINANCIAL CORPORATION $132,399,290

CITIZENS FINANCIAL GROUP, INC. $129,969,527FIFTH THIRD BANCORP $111,006,778

KEYCORP $91,718,216

NORTHERN TRUST CORPORATION $83,843,874

UNIONBANCAL CORPORATION $79,097,834

BANCWEST CORPORATION $72,770,154

HARRIS FINANCIAL CORP. $70,186,838

M&T BANK CORPORATION $68,021,263

DISCOVER FINANCIAL SERVICES $63,894,877

BBVA USA BANCSHARES, INC. $63,345,381

COMERICA INCORPORATED $54,001,083

HUNTINGTON BANCSHARES INCORPORATED $53,801,954ZIONS BANCORPORATION $51,035,696

CIT GROUP INC. $50,958,218

MARSHALL & ILSLEY CORPORATION $50,900,228

40From the Federal Financial Institution Examination Council, Top 50 Bank Holding Companies,

http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspxretrieved on Feb. 17, 2011.
http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1073757&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1073757&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1039502&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1951350&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1120754&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1120754&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=2380443&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=2380443&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=2162966&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=2945824&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=2816906&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=3232316&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1119794&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1119794&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1069778&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1069778&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=3587146&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=2277860&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1249196&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1131787&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1562859&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1111435&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1074156&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1275216&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1275216&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=3242838&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=3242838&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1132449&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1070345&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1070345&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1068025&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1199611&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1199611&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1378434&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1378434&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1025608&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1025608&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1245415&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1037003&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1037003&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=3846375&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1078529&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1199844&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1068191&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1027004&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1027004&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1036967&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=3594612&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspxhttp://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspxhttp://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspxhttp://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=3594612&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1036967&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1027004&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1068191&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1199844&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1078529&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=3846375&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1037003&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1245415&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1025608&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1378434&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1199611&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1068025&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1070345&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1132449&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=3242838&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1275216&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1074156&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1111435&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1562859&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1131787&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1249196&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=2277860&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=3587146&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1069778&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1119794&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=3232316&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=2816906&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=2945824&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=2162966&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=2380443&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1120754&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1951350&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1039502&parDT_END=99991231http://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parID_Rssd=1073757&parDT_END=99991231


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APPENDIX 2: COMMERCIAL BANK GROWTH41

Year Commercial Banks Total Assets

1975 14,384 1,086,673,571,000

1976 14,410 1,182,412,000,0001977 14,411 1,339,376,000,000

1978 14,391 1,507,936,000,000

1979 14,364 1,691,789,000,000

1980 14,434 1,855,687,000,000

1981 14,414 2,028,982,000,000

1982 14,451 2,193,339,000,000

1983 14,469 2,342,101,000,000

1984 14,483 2,508,870,797,000

1985 14,407 2,730,672,227,000

1986 14,199 2,940,698,646,000

1987 13,703 2,999,948,955,000

1988 13,123 3,130,795,767,000

1989 12,709 3,299,362,233,000

1990 12,343 3,389,489,669,000

1991 11,921 3,430,682,290,000

1992 11,463 3,506,170,931,000

1993 10,959 3,707,088,284,000

1994 10,452 4,012,106,792,000

1995 9,941 4,315,175,017,000

1996 9,528 4,582,164,804,000

1997 9,143 5,018,532,250,0001998 8,774 5,442,603,969,000

1999 8,580 5,735,134,597,000

2000 8,315 6,245,559,732,000

2001 8,080 6,552,293,846,000

2002 7,888 7,076,911,860,000

2003 7,770 7,601,544,836,000

2004 7,631 8,415,614,796,000

2005 7,526 9,040,294,030,000

2006 7,401 10,091,540,877,000

2007 7,283 11,176,050,582,000

2008 7,086 12,308,857,132,000

2009 6,839 11,846,113,778,000

2010 6,529 12,067,603,009,000

41According to data from the FDIC. The number of commercial deposit institutions and total assets found at

http://www2.fdic.gov/hsob/hsobRpt.aspretrieved on Feb. 7, 2011. Information from 2010 is available fromhttp://www2.fdic.gov/SDI/main4.asp.
http://www2.fdic.gov/hsob/hsobRpt.asphttp://www2.fdic.gov/hsob/hsobRpt.asphttp://www2.fdic.gov/SDI/main4.asphttp://www2.fdic.gov/SDI/main4.asphttp://www2.fdic.gov/SDI/main4.asphttp://www2.fdic.gov/hsob/hsobRpt.asp


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APPENDIX 3: TEXT OF SECTION 622 OF THE DODD-FRANK ACT

SEC. 622. CONCENTRATION LIMITS ON LARGE FINANCIAL FIRMS.

"(b) Concentration Limit.--Subject to the recommendations by the

Council under subsection (e), a financial company may not merge or

consolidate with, acquire all or substantially all of the assets of, or

otherwise acquire control of, another company, if the total consolidated

liabilities of the acquiring financial company upon consummation of the

transaction would exceed 10 percent of the aggregate consolidated

liabilities of all financial companies at the end of the calendar year

preceding the transaction.

"(c) Exception to Concentration Limit.--With the prior written

consent of the Board, the concentration limit under subsection (b) shall

not apply to an acquisition--

"(1) of a bank in default or in danger of default;

"(2) with respect to which assistance is provided by the

Federal Deposit Insurance Corporation under section 13(c) of the

Federal Deposit Insurance Act (12 U.S.C. 1823(c)); or

"(3) that would result only in a de minimis increase in the

liabilities of the financial company.

"(d) Rulemaking and Guidance.--The Board shall issue regulations

implementing this section in accordance with the recommendations of the

Council under subsection (e), including the definition of terms, as

necessary. The Board may issue interpretations or guidance regarding the

application of this section to an individual financial company or to

financial companies in general.