SwitchYourBank.org presents

The Story of the

Megabanks & What They

Do

In 2008, several banks were considered “too big to fail” and were bailed out.

What has happened since?

Source: Bloomberg

2006 2012

Assets of the 5 largest banks, in tril-lions

$8.7T

$6T

They’ve gotten bigger.

These 5 banks have more than 52% of total bank assets.

Source: Dallas Fed

(That’s more than the other 5,700+ banks combined.)

Source: Dallas Fed

Can you name the 5 largest banks?

We’ll list them by assets, starting with #5. Try to guess before looking!

#5 Goldman Sachs: $948B

#4 Wells Fargo: $1,336B

#3 Citigroup: $1,916B

#2 Bank of America: $2,162B

#1 JPMorgan Chase: $2,290B

You passed! (We assume.)

But why does size matter?

Reason #1: Banks that are “too big to fail” get bailed out.

Reason #2: These banks have massive lobbying efforts. (Wall Street lobbyists outnumber politicians 5 to 1.)

Source: Aljazeera

Reason #3: These banks make complicated bets with other people’s money—including deposit money.

These complicated bets deserve more attention than they’re getting.

Michael Lewis, author of The Blind Side and Moneyball (and a former Wall Street salesman), explains these bets as follows:

“Extremely smart traders inside Wall Street investment banks devise deeply unfair, diabolically complicated bets, and then send their sales forces out to scour the world for some idiot who will take the other side of those bets.”

Source: Boomerang

The most common “diabolically complicated bet” is called a derivative.

Derivatives played a major role in the financial crisis by making the blowup much more complicated.

Here’s what Warren Buffett has to say about derivatives:

“Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

Source: shareholder letter

Warren Buffett’s business partner, Charlie Munger, adds:

“The derivatives traders have tended to rook their own customers. It’s not a pretty sight. It’s a dirty business.”

Source: CNN Interview

The 5 largest banks have 95% of the derivatives market.

Source: OCC

The global derivatives market has grown tremendously, from less than $100 trillion in 2000 to over $700 trillion in 2011.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

100

200

300

400

500

600

700

800

Global Privately Negotiated Derivatives

Notional amount, in trillions

In other words, the issue of “too big to fail” is still very relevant, and still deserves our attention.

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