Biggest 1001

Of the world’s 100 biggest banks at the end of 2013, none was in Africa – the only continent without one. Of 40 in Europe, 30 were based in the Eurozone.

China now has more big banks than the US. But of just 29 banks identified as ‘systemic’ or ‘too big to fail’ (TBTF) only 2 were in China.

Top 101

Of the top 10 banks by asset size at the end of 2013, three were in China but only one of these (the biggest of all) featured among the 29 on the TBTF list. Asset size does not always reflect the full extent of a bank’s operations. It may exclude ‘derivatives’ or ‘off balance sheet’ activities. If these were added, the biggest bank would have been JP Morgan Chase in the US, which had derivative assets of $1.2 trillion, bringing its total to $3.7 trillion.

Trust

So deeply ingrained is sharp-practice in bankers’ culture that it contributed to their collapse. As a result, public trust in banks has been in precipitate decline.

In the UK there were 2.4 million complaints against financial services firms in the first six months of 2014 alone. The big banks, headed by Barclays, and complaints about the Payment Protection Insurance (PPI) scam, accounted for a large proportion of complaints.3 Worldwide, banks’ fines and legal settlements could eventually reach $300 billion.4

Profits

In 2014 the world’s top 1,000 banks made (pre-tax) profits approaching $1 trillion. By comparison, the world’s ‘Big Five’ oil corporations made $93 billion (after tax) profits in 2013.5

Reflecting a shift away from Wall Street and the City of London, banks made the biggest profits in China, where pay and bonuses (though rising) are less than half the size. UK-based banks made less profit than those in Brazil. Indian banks joined in.

Subsidy

Banks receive huge hidden subsidies. The bigger the bank, the bigger the relative size of the subsidy. This is largely (though not exclusively) because financial markets just assume that the bigger the bank the more likely it is to be bailed out. This makes them less risky. So it costs them less (and governments more) to borrow – and encourages them to make riskier bets. So huge is this subsidy that it can account for their entire profits. After the 2008 meltdown several big banks merged and grew even bigger. Smaller, safer or more ethical banks are fatally disadvantaged.

The IMF has estimated that in 2011-12 these subsidies were worth $15-70 billion in the US, $25-110 billion in Japan, $20-110 billion in the UK, and $90-300 billion in the euro area.8

Cost

The costs of the crash cannot be counted in cash terms alone; they have also been paid in the currency of anxiety, insecurity, unemployment, poverty, lost life-chances and aspirations.

One detailed estimate for the US, made in 2012, provides a rough guide:

Cost of the crash to the American people9 ($ trillions)

Some components: ($ trillions)

At least 3.7 million homes foreclosed. Including under-employed and discouraged workers, 17.5% of Americans (26.9 million people) were out of work at the October 2009 peak.

The number of families falling below the poverty line rose from 12.5% in 2007 to 15.1% – over 46 million individuals – in 2011.

The US Government Accountability Office estimated in 2012 that the cost of the crisis to the US economy could turn out to be as high as $10 trillion – more than $30,000 per head of the population.10

Bonus

Big bankers have rewarded themselves more handsomely than ever. In the UK attention has been focused on bonuses; in the US on pay.

Bonus Britain11

In the five years following the meltdown, bankers paid themselves more than twice as much in bonuses as they contributed in corporation tax.

Financial years 2008/9 to 2012/3 ($billion)

Pay USA12

Another Wall Street bonanza: CEO compensation for 2013.

  1. SNL Financial, snl.com and Financial Stability Board, financialstabilityboard.org
  2. British Social Attitudes Survey, natcen.ac.uk
  3. UK Financial Conduct Authority, fca.org.uk
  4. Daily Telegraph 13 November 2014.
  5. americanprogress.org
  6. thebanker.com
  7. New Economics Foundation, Quid Pro Quo: addressing the privileges of the banking industry, London, September 2011.
  8. Cited in Peter Stalker, The Money Crisis, New Internationalist, Oxford (forthcoming September 2015).
  9. bettermarkets.com The Cost of the Wall Street-caused Financial Collapse, 15 September 2012.
  10. US Government Accountability Office, Financial Crisis and Potential Impact of Dodd-Frank Act, Washington DC, 2013.
  11. robinhoodtax.org.uk
  12. wsws.org