THE BASIS POINT

FDIC’s Bair: Too Big To Fail Era Over. Really?!

Bank closures have slowed in 2011 versus 2010 but haven’t stopped. Forty-seven banks have failed year to date, including two on Friday.

I guess that these two banks weren’t “too big to fail.” Departing FDIC chairman Sheila Bair says the era of too-big-to-fail banks isn’t just ending, it’s already over. Really?

A few weeks back she said, “Congress has given the FDIC a tremendous amount of responsibility to ensure that financial organizations formerly deemed too big to fail will no longer receive taxpayer funded bailouts.”

The market seems to believe otherwise, however, and given the way the stocks and bonds of companies like BofA, Citi, Chase, Wells, etc. are trading, analysts believe that the government would indeed rescue them if a crisis threatened to take down the global financial system.

The basis for Bair’s assertion rests in the FDIC’s new powers under the Dodd-Frank Act, which didn’t even pretend to address the issues at too-big-to-fail Fannie Mae, Freddie Mac, or AIG.

And the Federal Reserve Board recently released information on the Top 50 bank holding companies in the US as of March 31 2011.

It is apparent that “too big to fail” banks are still too big to fail, and wonders if that should really be a goal of our government. The four largest US bank holding companies each have assets above $1 trillion (Bank of America and JPMorgan Chase are above $2 trillion) and control roughly 52% of all assets of the entire group. All told, the top 50 bank holding companies control over $14.6T in assets.

Too Big to Fail Ends With Wave of a Magic Wand

FDIC Failed Bank List