Too Big To Fail Banks

AN INTRODUCTION
Strictly speaking, theres no such thing as a too
big to fail bank. Theyre known instead as
global systematically important banks, or
GSIBs.
 $2.4T
$2.1T

$1.8T $1.7T

$861B $788B

$394B
$245B

JPMorgan B of A Wells Citigroup Goldman Morgan BONY State

Chase Fargo Sachs Stanley Street

Right now, there are eight GSIBs, ranging in size

from $245 billion in assets up to $2.4 trillion.
 $2.4T
$2.1T

$1.8T $1.7T

JPMorgan B of A Wells Citigroup Goldman Morgan BONY State

Chase Fargo Sachs Stanley Street

Four are commercial banks: JPMorgan Chase,

Bank of America, Wells Fargo, and Citigroup.
 $861B $788B

JPMorgan B of A Wells Citigroup Goldman Morgan BONY State

Chase Fargo Sachs Stanley Street

Two are investment banks: Goldman Sachs

and Morgan Stanley.
 $394B
$245B

JPMorgan B of A Wells Citigroup Goldman Morgan BONY State

Chase Fargo Sachs Stanley Street

And two are custodial banks: The Bank of New

York Mellon and State Street.
 G-SIBs Regional Banks

STI
MS

STT

MTB
BAC

BBT

NTRS
USB
BK

COF

ALLY

RF
C
JPM

WFC

AXP
GS

PNC

CFG
FITB

KEY
While all of these banks are among the biggest
in America, size isnt the only determinant. The
Bank of New York Mellon and State Street, for
example, have smaller balance sheets than
non-GSIB U.S. Bancorp.
These banks role in the global financial system
is just as important -- which is why theyre
called global systematically important banks.
What makes The Bank of New York Mellon and
State Street systematically important is the fact
that they oversee a combined $60 TRILLION
worth of client assets.
There are 3 main consequences that come
with GSIB status none of which is good from
the perspective of an investor in these firms.
First, GSIBs are subject to heightened
regulatory scrutiny, which includes annual
stress tests that assess whether or not these
banks have enough capital to survive a future
downturn akin to the financial crisis.
Second, GSIBs cant increase their dividends or
stock buybacks without the Federal Reserves
approval in the annual comprehensive capital
analysis and review, or CCAR.
PROFITABILITY

LEVERAGE

Third, GSIBs cant use as much leverage as

their smaller counterparts, which weighs
heavily on a GSIBs profitability.
The net result is that GSIBs, holding all else
equal, are no longer able to compete on a
level playing field against the likes of U.S.
Bancorp and M&T Bank, among others.
At the same time, however, its safe to say that
the heightened regulatory scrutiny of GSIBs has
made the financial system safer.
Looking for more information like this?
The Motley Fools mission is to help the world invest better. Weve done this over
the past 20 years by thinking long term and outside the box even if that means
turning Wall Street on its head. To learn more about what The Motley Fool thinks
about current investment trends, and receive a special free report about what
might be the next big industry to come out of Silicon Valley, just click here now.