Big banks grow more powerful under Obama

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Big banks grow more powerful under Obama
5 September 2009

The Washington Post carried an article last week outlining the immense
consolidation that has taken place in the US banking system as a
result of the policies of the Bush and Obama administrations in
response to the financial crisis.

The article, entitled “Banks ‘Too Big to Fail’ Have Grown Even
Bigger,” reports how the largest banks have consolidated control over
a greater share of financial markets and are using their monopolistic
position to increase their profits by raising fees and interest on
consumers and small businesses.

“The oligopoly has tightened,” said Mark Zandi of Moody’s Economy.com,
who is quoted in the Post article. “There’s been a significant
consolidation among the big banks, and it’s kind of hollowing out the
banking system,” he added.

The newspaper reports that JPMorgan Chase, Wells Fargo and Bank of
America now each hold more than 10 percent of all deposits in the
country. These banks, plus Citigroup, issue half of all mortgages and
two-thirds of all credit card loans. In the past year alone, the ten
largest banks have increased their share of bank deposits from 40.6
percent in 2007 to 48.2 percent today.

The large banks are taking advantage of their increased control over
the market to drive up fees. The Post noted that in the last quarter
these banks raised their deposit fees by an average of 8 percent,
while the smaller banks lowered their fees by 12 percent.

In promoting and subsidizing the takeover of failing banks by the
biggest banks and investment houses, the Post notes, the government
violated federal antitrust regulations, which prohibit any single bank
from controlling more than 10 percent of deposits nationwide. They
also violate Justice Department antitrust advisories on the degree of
control over regional financial markets by individual banks.

Major milestones in the consolidation of the banking system over the
past 18 months include:

• March 14, 2008: JPMorgan Chase acquired the investment bank Bear
Stearns. The Federal Reserve Board provided a $29 billion subsidy to
JPMorgan for the purchase.

• June 5, 2008: The Federal Reserve approved Bank of America’s
takeover of Countrywide Financial, the nation’s largest mortgage company.

• September 15, 2008: Bank of America purchased Merrill Lynch on the
basis of a promise by the Fed and the Treasury to give Bank of America
$30 billion in guarantees on Merrill Lynch assets.

• September 15, 2008: The Federal Reserve and the Treasury allowed the
investment bank Lehman Brothers to collapse.

• September 21, 2008: The Fed and the Bush administration allowed the
investment banks Goldman Sachs and Morgan Stanley to become bank
holding companies, so that they would be legally entitled to cheap Fed
loans and other subsidies.

• September 25, 2008: JPMorgan Chase acquired Washington Mutual, the
largest savings and loan bank in the US. The transaction was
subsidized by the Federal Deposit Insurance Corporation (FDIC).

• October 12, 2008: Wells Fargo acquired Wachovia, in another deal
subsidized by the FDIC.

In addition to these major acquisitions, more than 80 smaller banks
have been seized by the FDIC this year and many have been incorporated
into larger banks, with the aid of government subsidies.

As a result of this process, three major competitors of the largest
Wall Street firms—Bear Stearns, Lehman Brothers and Merrill Lynch—have
disappeared, and major commercial banks such as Wachovia and
Washington Mutual have vanished, leaving such giants as JPMorgan Chase
and Goldman Sachs in a position to dictate market conditions.

The growth of the remaining big banks has been staggering. Bank of
America grew by more than 138 percent after acquiring Merrill Lynch
and Countrywide Financial, according to the Washington Post report.
JPMorgan Chase grew by 50 percent after appropriating Bear Stearns and
Washington Mutual, and Wells Fargo expanded by 43 percent after
snapping up Wachovia.

Prior to the crisis, Wells Fargo, JPMorgan Chase and Bank of America
controlled 4.4, 7.0 and 9.6 percent of bank deposits, respectively.
Now, they control 11 percent, 10 percent, and 12.9 percent.

This consolidation, together with the Obama administration’s pledge to
spend whatever public funds are required to prevent the failure of the
remaining mega-banks, has enabled these banks to borrow funds at
significantly lower rates than their smaller rivals, creating the
conditions for a further concentration of financial power in the hands
of a few super-banks. Banks with $100 billion or more in assets are
borrowing money at interest rates on average 0.34 percentage points
lower than their smaller rivals, according to the Washington Post.
That advantage was only 0.08 percent in 2007.

The process of government-mediated consolidation continues. The Wall
Street Journal reported Monday that the FDIC has been subsidizing the
purchase of distressed banks by larger institutions by guaranteeing
virtually all of the potential losses of the bigger banks.

The article reports that the FDIC has assumed up to 95 percent of the
risk on $80 billion in assets of failed banks bought by other banks.
The FDIC’s total potential losses are close to $80 billion, compared
to the $10.4 billion it currently holds to guarantee the deposits of
millions of consumers.

The FDIC’s deposit insurance fund has fallen from more than $50
billion a year ago and is being further depleted by new bank failures.
Officials say they expect over 300 more bank failures in the coming
months. The agency expects to cover $14 billion in losses on the
takeover subsidies it has already extended. It is widely expected that
the FDIC will tap billions of dollars in public Treasury funds to
shore up its deposit insurance system.

As the Wall Street Journal notes, the FDIC’s policy of engineering
bank takeovers at public expense “amounts to a subsidy for dozens of
hand-picked banks.”

The vast concentration of financial power is the result of a
deliberate policy of both the Bush and Obama administrations. It is
one component of a program to utilize the financial crisis
precipitated by the speculation and profiteering of the major banks to
carry out a massive restructuring of the US economy in the interests
of the most powerful sections of the financial elite.

It goes hand in hand with an unprecedented attack on the jobs and
wages of the working class, Obama’s proposals to slash health care for
millions of workers, and preparations for an historic assault on core
entitlement programs such as Medicare, Medicaid and Social Security.
The aim is to place the full burden for the capitalist crisis on the
working class and permanently lower working class living standards.

Obama’s forced bankruptcy of General Motors and Chrysler was a
milestone in this process. Just as with his health care proposals, it
was dictated by Wall Street veterans in the Obama administration and
corporate lobbyists. The destruction of health benefits for hundreds
of thousands of retired auto workers and their families is a preview
of the health care cost-cutting plans that are currently being debated
in Congress.

Under these conditions, the bank regulatory overhaul being touted by
the Obama administration can be nothing other than a travesty. The
Obama administration is an instrument of the most powerful Wall Street
interests, and neither can nor will impose any real limits on either
the speculative and profit-gouging practices of the banks or the
colossal compensation packages which the bankers award themselves.

Andre Damon

http://www.wsws.org/articles/2009/sep2009/pers-s05.shtml

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