Big banks grow, every state hit hard since recession

By Josh Benson


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Federally insured institutions as a whole continue to rebound since the Great Recession.

Total assets, capital, deposits, profits and reserves have all collectively improved, according to an analysis of Federal Deposit Insurance Corporation (FDIC) data by the Investigative Reporting Workshop, which looked at fourth-quarter FDIC data from December 2007 to December 2015 to get a clearer picture of the changes that have occurred in the banking industry.

Lending remained just below pre-recession levels, while losses and troubled assets both decreased.

But despite the improving financial figures, the total number of banks reporting information to the FDIC has steadily declined each year.

The more than 2,300 banks that became inactive between December 2007 and December 2015 did so because of mergers, corporate reorganizations, self-liquidations and failures, said Julianne F. Breitbeil, a senior media relations specialist with the FDIC.

More than 500 banks failed.

Every state lost at least one bank during that eight-year stretch. Six states lost 100 banks or more: Texas (179), Illinois (178), Georgia (158), Florida (157), California (118) and Minnesota (117).

And 15 states each lost 50 banks or more.

Five states experienced at least 20 bank failures: Georgia (90), Florida (72), Illinois (63), California (40) and Minnesota (23).


Bar chart showing states that lost more than 100 banks

The decline has been dramatic. The country has not had an increase in the number of FDIC-insured institutions since the last quarter of 1985 and the first quarter of 1986. Despite this brief increase, the Workshop analysis shows a persistent, steady decrease in the number of banks since the beginning of 1984, when 17,886 financial institutions reported information to the FDIC.

From the first quarter of 1984 to the last quarter of 2015, the number of banks in the United States declined by more than 65 percent. From 1990 through 1994, during the early 1990s recession and the savings-and-loan crisis, the industry withstood its biggest decline of banks over a five-year timespan: 20.2 percent. Additionally, banks have declined by more than 27 percent since the Great Recession began in December 2007.

In the state of Georgia, 90 banks failed between December 2007 and December 2015.

The decline of FDIC-insured institutions is significantly impacting parts of the country.

“Illinois was hit very hard by the banking crisis,” said Rebel A. Cole, a professor of finance at DePaul University.

“Businesses are failing right and left. Banks have failed right and left. Because of that, the economy, the jobs, are not being created,” he said. “It’s just a vicious circle.”

Chicago had the highest number of banks that became inactive or failed altogether, and the city had the highest number of banks still receiving aid from the Troubled Asset Relief Program, also known as TARP.

Illinois had the most TARP banks out of any state, the second-highest number of banks that became inactive and the third-highest number of banks that failed, according to the Investigative Reporting Workshop’s analysis, which used nine years’ worth of fourth-quarter FDIC reports to create a database that tracks how each state and U.S. territory performed in several important financial categories between December 2007 and December 2015.

Many other states suffered similar experiences. (Check out our sortable database of all 50 states and U.S. territories to see how your state performed. You can also search for an individual bank or credit union here in our BankTracker project.)


Map showing cities with the most failed banks in 2016

An examination of the big banks, however, showed that some things stayed the same.

The majority of assets continue to be concentrated within just a handful of institutions – the so-called “too big to fail” banks.

As of December 2015, nine banks collectively had more assets than the remaining 6,182 banks that reported financial information to the FDIC. Ultimately, 0.15 percent of these federally insured institutions had more wealth than the remaining 99.85 percent.

And the big banks got even bigger. This is especially true of the banks that reported at least $1 trillion worth of assets. Three of the four experienced a surge in asset growth.


List of bank assets
JPMorgan Chase, which acquired Washington Mutual, increased its total assets by more than $400 billion. Bank of America increased its assets by more than $160 billion. The largest increase, by far, though, belonged to Wells Fargo, which acquired Wachovia. Wells Fargo’s assets increased by more than 200 percent – just over $1 trillion.

This concentration of wealth worries financial experts like Cole.

“It’s insanity,” he said. “You’ve set up a situation where you have trillion dollar institutions that can essentially buy the political process.”

“They were untouched under Republicans. They’re untouched under Obama, and they’ll be untouched under whoever gets elected. The lifeblood of political contributions comes from Wall Street. It’s just unconscionable the way it’s set up.”

Even though the banking industry appears to have rebounded from the recession, some experts remain wary about the numbers that are being reported to the FDIC, the Federal Reserve and other regulatory agencies.

Concerns arise over a multitude of interconnected issues, most of which essentially boil down to questionable accounting practices and a lack of transparency.

Banks disclose a variety of financial information that is supposed to help regulators assess the health and various risks associated with the nation’s banking system. But this information can oftentimes be incomplete or misleading, Mayra Rodriguez Valladares, the managing principal at MRV Associates, said. The firm’s clients include the Security and Exchange Commission, the Federal Reserve Bank of New York and the FDIC.

Capital ratios and risk-weighted assets are two of the more common factors used to gauge the health of the nation’s banks and any risks that may be associated with them. However, there are several problems with how these numbers are collected, calculated and reported, she said.

First, some banks — including big banks like Citibank and JPMorgan Chase — are allowed to use their own internal formulas to calculate their own individual levels of risk. These internal formulas are rarely released to regulators or the public. Second, banks have a problem with data aggregation, so they may not even have an accurate representation of their own financial portfolios, Rodriguez Valladares said.

Another concern relates to off-balance sheets, which banks can use to obscure financial information, such as letters of credit and derivatives, Rodriguez Valladares said.

“For example, JPMorgan [Chase],” she said, “their assets in the last couple of years have ranged around $2 trillion.”

She added, “Their off-balance, just derivatives, I’m not even talking letters of credit or other things, it’s $70 trillion.”

Rodriguez Valladares, of course, is not the only one who looks at these figures with cautious skepticism.

“I’m not reassured by stress tests, and I’m not reassured by capital ratios,” said Anat R. Admati, the George G.C. Parker Professor of Finance and Economics at Stanford University.

“The regulatory capital ratios looked just fine right before the crisis,” she said. “These measures still give you false reassurances.”

Wendell Cochran, former senior editor at the Workshop and creator of the original BankTracker project, contributed to this report.