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Too Big to Fail and Too Big to Save: Dilemmas for Banking Reform

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 Too Big to Fail and Too Big to Save:
Dilemmas for Banking Reform

James R. Barth and Clas Wihlborg*

December 17, 2015

*
James R. Barth is Lowder Eminent Scholar in Finance at Auburn University and a Senior Fellow at the
Milken Institute, and Clas Wihlborg is the Fletcher Jones Chair of International Business at Chapman
University.

1
Too Big to Fail and Too Big to Save: Dilemmas for Banking Reform

1. Introduction

‘Too big to fail’ traditionally refers to a bank that is perceived to generate unacceptable
risk to the banking system and indirectly to the economy as a whole if it were to default
and unable to live up to its obligations. Unlike non-financial firms banks generally have
substantial liabilities to other banks through the payment system and other financial links,
which can be sources of ‘contagion” if a bank fails.1

In the United States, the practice of treating troubled big banks differently from troubled
small ones dates back to the 1984 bailout of Continental Illinois Corporation. That
taxpayer-funded rescue was based on fears that a bank collapse of Continental’s magnitude
would destabilize the entire financial system (see, for example, Kaufman, 2002; Shull,
2010; and Barth, Prabha, and Swagel, 2012). Those same fears prompted far bigger bank
bailouts, both in the U.S. and Europe, during the recent global financial crisis. In the wake
of that experience, regulators and banking experts almost unanimously agree that
regulatory reform is essential to ensuring that no bank is ever again too big to fail.

After the Great Recession ‘too big to fail” has become a concern for financial firms more
broadly, since there is substantial interconnectedness among financial institutions involved
in financial market trading activities that generate liquidity in the markets for a variety of
financial instruments. The financial crisis in 2007-2009, which contributed to the Great

1
It is important at the outset to define the term “bank.” Under U.S. law, a bank is a firm that offers demand
deposits, makes commercial and industrial loans, and has its deposits insured by the FDIC. The “biggest
banks” are typically holding companies, which conduct banking and certain other financial activities, such
as securities and insurance activities, through separate subsidiaries. All of the biggest U.S. banks are bank
holding companies, and it is the total assets of the holding companies, not simply of their banking
subsidiaries, that appear in many of the tables and figures. In some countries, however, the biggest banks are
universal banks in which banking and other financial activities are conducted in the same entity. In order to
make apple-to-apple comparisons, we include U.S. bank holding companies rather than simply the bank
subsidiaries. It should also be noted that prior to the Dodd-Frank Act, the regulatory authorities could seize
subsidiary banks, but not the holding companies. This is no longer the case under the new law.

2
Recession originated outside the traditional banking system when the liquidity in financial
instruments held by and issued by banks and financial institutions dropped dramatically.2

Outside the U.S. the policy responses to banking crises have long been characterized by
general bailouts of banks’ creditors (and sometimes shareholders as well) in the form of,
for example, blanket guarantees, unlimited liquidity support or state nationalization as
documented in Caprio, et al., (2005) and Honohan and Klingebiel (2003). One explanation
is that few countries outside the U.S. have had established special legal procedures for bank
insolvencies until very recently. Failing banks in most countries had to be resolved under
general corporate insolvency law. Resolution under such laws is time-consuming and not
suitable for failing banks with liabilities that support liquidity in the economy. 3

After the Continental Illinois failure the U.S. resolution procedures for banks were
strengthened with the implementation of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA) in 1991. Under these procedures small and midsized banks in
the U.S. have been allowed to fail with consequences for banks’ uninsured creditors. The
bailout of large banks but not small and midsized banks during the financial crisis in 2008
and 2009 established ‘too big to fail’ and the differential treatment of such banks.

Financial reforms outside the U.S. since the 2007-2009 crisis include the implementation
of special procedures for bank resolution, in particular in the EU, with the intention to
address the ‘too big to fail’ problem as well. In the U.S. the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act) includes procedures for resolving large
banks. We argue that the credibility of these procedures are critical for the future of ‘too
big to fail.’

The differential treatment of large banks has been formalized in the designation of 30 banks
as globally systemically important banks (G-SIBs)4 and a larger number of systemically

2
The liquidity problem in markets for financial instruments is not independent of solvency problems since
the lack of liquidity can be generated by uncertainty about the solvency of issuers of financial instruments.
At the time of the financial crisis a large number of banks and other financial institutions holding subprime
securities relied heavily on short-term financial instruments for funding.
3
See Wihlbog (2012).
4
This is the number of G-SIBs identified by the Financial Stability Board as of November 2014.

3
important financial institutions (SIFIs). These designations have implications for their
regulation and supervision, as well as for the degree to which these financial institutions
may enjoy implicit subsidies in costs of funding as we will discuss below.

We use the concept of ‘too big to fail” to incorporate ‘too complex to fail’ as well. We
discuss factors affecting complexity and the impact of these factors on systemic risk.
Although complexity and size are far from perfectly correlated as we will see below,
increased complexity essentially implies that a financial institution becomes ‘too big to
fail’ at a smaller size.

Our main objectives are to identify the different dimensions of “too big to fail” and evaluate
various proposed reforms for dealing with this problem. In addition, we provide data to
document the various dimensions of size and complexity, which may contribute to or
reduce a bank’s systemic risk.

Some observers argue that the size of individual banks failing is less important for a
government’s decision whether to bail out banks than the share of the banking system under
stress. For example, Brown and Dinc (2011) emphasize ‘too many to fail.’ There are
reasons to believe in a separate effect of ‘too big to fail.’ One is that the “too big to fail
bank’ can be an independent source of crisis. Furthermore, many small banks are not likely
to fail at exactly the same time in response to a large shock outside the banking system. A
resolution authority may be able to manage the failures of many banks one by one over
some time without having to fear the same degree of contagion as in the case of one large
bank’s failure.

One major cost generated by banks being ‘too big to fail’ is that competition between banks
of different sizes and degrees of complexity becomes distorted. If the non-insured creditors
of some banks perceive that these banks are less likely to fail than other banks, the costs of
funding for the relatively safe banks become relatively low. There are estimates of the
implicit subsidy associated with ‘too big to fail.’ For example, an International Monetary
Fund study (April 2014) estimates that the implicit subsidies given just to G-SIBs in 2011–
12 represent around $15–$70 billion in the United States, $25–$110 billion in Japan, $20–
$110 billion in the United Kingdom, and up to $90–$300 billion in the euro area.

4
The existence of an implicit subsidy implies also that banks have strong incentives to
achieve sufficient size and/or complexity to enjoy this competitive advantage. The
importance of these incentives relative to incentives generated by economies of scale and
scope as explanations for the trend towards increased size and complexity, which we
document below, is an open question that we will come back to.

A second cost is associated with ‘regulatory capture.’ A few very large banks are likely to
have a very strong influence on regulators, supervisors and legislatures. Regulatory capture
may be the result of explicit lobbying efforts of politicians and financial support in
elections. Less deliberately, regulators and supervisors have a tendency to develop shared
objectives and values with those being regulated and supervised.5

A third cost associated with ‘too big to fail’ is that it creates a link between bank risk and
sovereign risk. The fiscal costs of bailing out a large bank can be enormous and, thereby,
contribute to a country’s fiscal crisis. For example, the fiscal cost of injecting capital in the
Anglo-Irish bank in Ireland in 2009 amounted to 35 percent of Ireland’s GDP. Bank rescues
in Spain in 2011 similarly contributed to the debt crisis in that country.

The capital injections in relation to GDP in the U.S. banking system during the financial
crisis were far from the magnitudes of the Irish and the Spanish rescue operations but the
political resistance to government aid to banks grew strong from both ends of the political
spectrum. A political consensus that banks must never be ‘too big to fail’ developed. This
consensus is reflected in the Dodd-Frank Act. It explicitly states that no bank must be too
big to fail but there is widespread skepticism whether the specific reforms such as the
Orderly Liquidation Procedures are sufficiently strong to allow a large bank to be resolved
in such a way that uninsured creditors must share in losses.6 There are similar questions
with respect to the credibility of so- called bail-in rules in the EU Bank Recovery and
Resolution Directive.7

5
See Barth, et al., (2012) for an analysis of regulatory capture in the U.S.
6
See, for example, Barth, Prabha and Wihlborg (2015).
7
See European Shadow Financial Regulatory Committee, Statement No 39, Nov. 14, 2014.

5
The fiscal and political costs associated with bank bailouts during the financial crisis 2007-
2009 and the euro debt crisis thereafter suggest that the large banks in many countries are
not only ‘too big to fail’ but also ‘too big to save.’ This view is reflected in the many
proposals to eliminate the too big to fail problem. We discuss these proposals in Section 5.
The dilemma facing policy makers is that if ongoing reforms do not credibly eliminate the
‘too big to fail’ problem the ‘too big to save’ problem may become the cause of an inability
to deal effectively with the resolution of large banks in another crisis. The problem may
become particularly acute for banks with large operations in several countries with
conflicting interests with respect to bearing the burdens of crisis management.

Relatively small countries with large banks with international operations are particularly
vulnerable to the ‘too big to save’ problem. The Icelandic banking crisis in 2009 is so far
the prime example of ‘too big to save.’ Iceland simply did not have the financial resources
to rescue three banks with large international operations.

The paper proceeds as follows. In Section 2 we present a brief history of ‘too big to fail’
since the concept was first employed in the U.S. 30 years ago. In Section 3 we present data
describing how banking systems in a number of countries and globally have become
increasingly concentrated and dominated by relatively few giant banks. In Section 4 we
focus on complexity as it contributes to systemic risk and discuss the link between “too big
to fail’ and complexity. We present a number of measures that describe different
dimensions of complexity. The criteria developed by the Financial Stability Board (FSB)
to identify G-SIBs are discussed. The implications of this designation for capital adequacy
regulation, in particular, are reviewed in Section 5, along with other policy proposals with
the objective to reduce size and complexity of banks. Costs and benefits of different
proposals are discussed. These costs and benefits depend to a large extent on what factors
have been driving the development towards size and complexity. We emphasize that an
efficient organization of the financial system requires that the ongoing regulatory reforms
strengthen market discipline on banks. Section 6 concludes with an assessment of
economic and political factors shaping the future of ‘too big to fail.’

6
In an Appendix we present evidence with respect to so-called industrial banks owned by
non-financial industrial corporations. These banks may also qualify as ‘too big to fail’ by
conventional measures but they seem to be less risky than the banks owned by bank holding
companies. This suggests that lack of implicit government guarantees of industrial banks
may be effective as a disciplinary device on risk-taking.

2. The Big Keep Getting Bigger: A Brief History of Too-Big-To-Fail

In view of all the concern today over some banks being too big for regulatory comfort, it
is instructive to look back at the circumstances that gave rise to the decision that bank size
per se could be a key factor in treating big banks that encounter financial difficulties
differently from smaller banks.

The concept of ‘too big to fail’ seems to have been established in the US as a result of the
$4.5 billion bailout of Continental Illinois National Bank & Trust Co. of Chicago in 1984.
The Wall Street Journal reported that the Comptroller of the Currency C. Todd Conover
told Congress in hearings held by the House Banking Committee that “the federal
government won’t currently allow any of the nation’s 11 largest banks to fail.” The article
noted that members of the committee responded to Conover’s statement by saying that the
“government had created a new category of bank: the ‘TBTF’ bank, for Too Big To Fail.”
The article pointed out that this was the first time a government official acknowledged the
existence of such a policy (Carrington, 1984).

The origin of ‘too big to fail’ in the U.S. rather may explained by the observation that the
U.S. was the only advanced county where banks were allowed to fail at the time. The much
more concentrated banking systems in Europe were generally viewed as akin to public
utilities before the setting of interest rates and the allocation of credit were liberalized
during the 1980s. The banks dominated the financial systems and a special insolvency law
for banks did not exist or was not applied. Heavily regulated banks were assumed to not
fail.8

8
Philip Davis (1995) provides an overview of the evolution of financial systems and their fragility since
1970 with an emphasis on the period 1988-1993.

7
Even when banking crises erupted in Europe after the liberalization in the early 1990s it
was taken for granted that banks would not be allowed to fail. For example, in the early
1990s the Scandinavian countries used a combination of nationalization, blanket
guarantees of bank liabilities and capital injections to manage banking crises.

The attitude in Europe towards bank bailouts did not change until after the Great Recession
in 2007-2009. This crisis also triggered an awareness among taxpayers, policymakers and
regulators that ‘too big to fail’ was an issue in the public interest that needed to be
addressed. We return in Section 5 to the banking reforms proposed by the FSB and the
Basel Committee on Banking Supervision (BCBS) to address the issue in the aftermath of
the Great Recession.

Going back to US developments after the identification of 11 banks as to big to fail in 1983
Table 1 identifies these banks , their holding companies, location, asset size, and the
percentage of total bank assets at yearend 1983.9 The banks accounted for nearly one of
every three dollars of the assets of the roughly 14,500 banks in the U.S. at the time. The
biggest of the big banks were Citibank and Bank of America, each with about $104 billion
in assets.

Each of the banks in the right side columns in Table 1 belonged to a Bank Holding
Company (BHC) as shown on the left. At the time bank regulatory authorities could seize
only a troubled bank, not the parent BHC. If the parent company encountered financial
difficulties due to the operations of a bank subsidiary, the ultimate resolution would take
place in bankruptcy court. The Dodd-Frank Act has changed this by granting regulators the
authority to seize a troubled bank holding company. Table 1 shows that the bulk of the
assets of the holding companies were accounted for by the subsidiary banks, ranging from
a low of 83 percent in the case of Citicorp to a high of 100 percent for Bankers Trust New
York Corp. The 11 parent bank holding companies accounted for one-third of the total
assets of all the bank holding companies at the time while the 11 banks accounted for 30.1
percent of all bank assets in the U.S.

9 All the data in the tables and figures are in current, not constant, US$.

8
30 years later the original 11 banks have shrank in number to four, while the 11 BHCs have
been reduced to five. Only two of the banks, Citibank and Wells Fargo, remain with their
original holding company. Although Bank of America remained with Bank of America
Corp., which also acquired Security Pacific National Bank, Nations Bank eventually
acquired Bank of America Corp. and kept the better known name. Also, J.P. Morgan & Co.
merged with Chase Manhattan Corp. to create JPMorgan Chase & Co. As a result of the
merger and several acquisitions, five of the initial 11 too-big-to-fail banks became part of
this new and larger holding company. Continental Illinois National Bank & Trust was
eventually seized by the Federal Deposit Insurance Corp. and sold to Bank of America
Corp. This meant that despite the earlier bailout of a too-big-to-fail bank, regulators
eventually allowed the same bank to be acquired by a bigger bank, which became even
bigger. The four remaining too-big-to-fail banks accounted for 30 percent of total bank
assets in March 2014, the same share 11 banks held in 1984. Clearly, these big banks got
bigger over the past three decades, and they did so with the blessing of the regulatory
authorities. Many of the original too-big-to-fail banks were absorbed by BHCs and
therefore have simply been integrated into a larger organization.

The four remaining U.S. BHCs account for nearly 50 percent of the total assets of all BHCs
at year-end 2013. In contrast, at year-end 1983 the holding companies of the 11 original
too-big-to-fail banks accounted for 33 percent of the total assets of all BHCs.

As with banks, big BHCs have gotten much bigger over the past 30 years, and also with
regulatory approval. BHCs and their activities will be discussed in greater detail in the next
section on complexity.

The bottom line of this discussion of the origin of ‘too big to fail’ in the U.S. is that all but
one of the biggest banks identified as too big to fail in 1984 still exist today. However,
those remaining banks are now much bigger, and the four bank holding companies that
now control 10 of the original too-big-to-fail banks are also much bigger. Despite all the
concern over “too big to fail,” bank regulators allowed the big to get bigger. During the
2007-2009 financial crisis JPMorgan Chase & Co. was allowed to acquire Bear Stearns
and Washington Mutual. Bank of America Corp. was allowed to acquire Countrywide

9
Financial and Merrill Lynch. Wells Fargo & Co. was allowed to acquire Wachovia.
Whereas the government bailed out one big bank with $4.5 billion in 1984, it injected $45
billion each into Bank of America and Citigroup and $25 billion each into JPMorgan and
Wells Fargo. Moreover, the government injected billions of dollars more into several
hundred other banks. It can be seen as ironic that the regulators allowed, and in some cases
even encouraged, big banks to get bigger over the past 30 years while they now are
proposing regulations to make those same banks smaller.

3. Just How Big Are the World’s Biggest Banks?

There are several different ways to measure “big.” The relevance of each particular
measure depends on the objective of the analysis. Size per se does not necessarily inform
us about the importance a bank within the financial system or about the vulnerability of the
real economy from a bank’s failure.

We start by ranking the 100 biggest publicly traded banks in the world by their total
assets.10 This enables us to work with a large but not unmanageable sample of banks. It
also enables us to obtain information about market assessments on the value of banks as
well as other relevant information. Table 2 ranks these big banks (at the holding company
level) by total assets as of the second quarter, 2015. The banks are headquartered in 25
different countries of varying size and show a wide range in the asset size.11 The biggest is
Industrial & Commercial Bank of China, with $3,667 billion in assets, while the smallest
is Charles Schwab Corporation of the United States with $164 billion in assets. The biggest
bank is therefore 22 times the size of the 100th biggest bank in the world. There are 22
“trillion dollar banks” in the world, of which four are U.S. banks, according to our list.

Ranking total assets, however, does not produce an apples-to-apples comparison. There is
no uniform worldwide accounting standard for measuring assets. Most of the home
countries for banks in this table rely on International Financial Reporting Standards (IFRS),

10
The total assets of banks worldwide were $102 trillion in the second quarter of 2015 and based on publicly
traded banks in 127 countries. The data are obtained from BankScope.
11
The 25 countries account for roughly 55 percent of world population, 80 percent of world GDP, and 92
percent of bank assets worldwide, as of the second quarter of 2015. As of 2012 these same countries
accounted for 85 percent of world equity market capitalization, and 95 percent of world bonds outstanding.

10
but the U.S. and others rely on their own Generally Accepted Accounting Principles
(GAAP).

The Europe-based International Accounting Standards Board (IASB), for example, allows
less balance sheet offsetting than the U.S.-based Financial Accounting Standards Board
(FASB). The different offsetting requirements result in a significant difference between
assets presented in accordance with IFRS and assets in accordance with U.S. GAAP. This
is particularly the case for entities that have large derivative activities (see ISDA, 2012).
For example, countries that use IFRS, and some that use GAAP, report derivatives on a
gross rather than a net basis. In Switzerland, banks are allowed to choose between the two
accounting standards. When an adjustment is made to measure total assets on a comparable
basis, the result is a significant change for several of the world’s biggest banks. In
particular, JP Morgan Chase reports total assets of $2.5 trillion under U.S. GAAP, in which
case derivatives are measured on a net basis. When derivatives are calculated on a gross
basis, JP Morgan’s assets increase to $3.3 trillion and the bank jumps from sixth place to
second place among the world’s largest. Likewise, Bank of America leaps from ninth place
to fifth. The two far right columns in Table 2 shows the impact on asset size of reporting
on gross instead of net basis.

It is useful to explain more fully the impact on total assets of the treatment of derivatives
under different accounting standards.12 Figure 1 shows what happens to the total assets of
the 13 U.S. banks if derivatives are measured under the IFRS rules rather than under U.S.
GAAP. The most dramatic changes occur at the biggest of the big U.S. banks, which carry
out a disproportionate share of trading in derivatives. As a result, several of those
institutions suddenly appear to eclipse competitors in other countries if they are measured
on the same basis. Indeed, U.S. GAAP treatment may be understating the assets of all U.S.
banks on our list by a total of $3.4 trillion. The differences in accounting standards between
the U.S. and EU have implications for calculations of required capital ratios and for the
implementation of Basel III as well. We return to this issue in Section 5.

12
For purposes of satisfying the Basel Capital Accord, all banks are allowed to use net derivatives when
calculating the risk-based capital requirements under Basel II.

11
As already noted, the world’s 100 biggest publicly traded banks are headquartered in 25
countries as shown in Table 3.13 The table shows that there are a total of 1,226 publicly
traded banks in these countries with total assets of $94 trillion. The 100 biggest banks
account only for 8 percent of all the banks, but 83 percent of the total assets. The United
States has the most publicly traded banks of any nation, with 736 banks. Japan and Russia
rank second and third with 97 and 60 banks, respectively. The China is the country whose
publicly traded banks collectively have the most total assets – $19.2 trillion. The publicly
traded banks in the United States and Japan are ranked second and third in terms of total
assets at $18.2 trillion and $10.0 trillion, respectively. The total assets of the banks in these
three countries total $47.4 trillion, or 50 percent of assets of all of the banks on our list.

Another way to view the world’s 100 biggest banks is not simply in terms of total assets
but their total assets relative to the total assets of all banks. This figure may be seen as a
measure of concentration in banking. In terms of individual countries, Table 3 shows the
ratio of the total assets of the biggest banks to total bank assets, which ranges from a low
of 28 percent in Taiwan to a high of 99 percent in Sweden and the United Kingdom.14 In
the case of the United States, the comparable ratio is 67 percent.

Still another way to view the world’s 100 biggest banks is by measuring total assets as a
share of GDP in order to measure the burden on the economy of the failure of large banks.
By that measure, Swiss big banks are by far the world’s “biggest,” with assets equal to 340
percent of Switzerland’s GDP. Russia’s banks would be the “smallest,’’ with assets equal
to only 52 percent of GDP. The 15 biggest U.S. banks are at the lower end of the range,
with assets equal to 105 percent of U.S. GDP.

The far right column in Table 3 shows the 100 banks by the ratio of their total assets to
equity market capitalization plus bonds outstanding. A relatively low value of this figure
indicates that the economy relies less on banks to finance economic activity. Thus, a low
number means that the country would be less vulnerable to a banking crisis since
alternative sources of financing exist. Taiwan and China both have the highest ratios at 479

13
Hong Kong and Taiwan are being treated as “countries” for purposes of this paper.
14
These data are obtained from BankScope, which accounts for over 90 percent of all banking assets in
countries (see, for example, Houston, Lin, and Ma, 2012).

12
percent and 257 percent, respectively, while the comparable ratio for the United States is
35 percent. The median ratio for all the countries is 72 percent. Higher ratios are associated
with bank-oriented financial markets, while lower ratios are associated with capital-
oriented financial markets.

Figure 2 shows the distribution of the world’s 100 biggest banks by number and total assets
across the 25 countries. The United States and China, with 14, have more banks than any
other nation on the list. Japan ranks second with 8 banks and Canada and Spain tie for third
with 6 banks. The remaining 20 countries account for 52 banks. Measured by total banking
assets, however, China’s big banks lead the world with $19 trillion. The United States’
banks come in second, with combined assets of $12 trillion, and the United Kingdom ranks
third with $8 trillion. Banks in the remaining countries have $39 trillion in assets, or 50
percent of the worldwide total.

Instead of focusing on the world’s 100 biggest banks, one can focus on various subsets of
these banks. Figure 3 plots the cumulative assets of the world’s biggest banks, starting with
the biggest and ending with the smallest, as a share of both total bank assets worldwide and
world GDP.15 Although both ratios increase as the assets of additional banks are added, the
asset-to-world GDP ratio is always higher than the ratio to worldwide assets. That reflects
the fact that global bank assets are larger than world GDP. As of the second quarter of
2015, global bank assets for all publicly traded banks totaled $102 trillion and world GDP
in 2014 was $77 trillion.16

To provide a more historical perspective on the importance of big banks, Figure 4 shows
that focusing on just the 50 biggest banks in the world, their total assets relative to world
GDP increased to 83 percent in the second quarter of 2015 from only 15 percent in 1970.
This represents a nearly six-fold increase over this time period. For purposes of
comparison, Figure 5 shows the same increase in the total assets of the 50 biggest U.S.
banks relative to U.S. GDP over the same time period. It may be seen that the ratio of the
assets of these banks to GDP increased to 83 percent in the second quarter of 2015 from

15
The detailed information for Figure 3 is provided in Appendix 1.
16
The world’s bank assets grew five times as fast as world GDP over the period 1970-2015.

13
only 25 percent in 1970. This represents a threefold increase over the period. These figures
illustrate what has been called the financialization of many advanced economies in the
form of expansion of market oriented financial activities that are not directly linked to
intermediation.17

Figure 6 provides another breakdown, which illustrates the concentration in the banking
industry. The largest 25 banks account for about half of the total assets of all banks
worldwide. The assets of the same banks are almost two-thirds of world GDP. As may be
seen, a relatively few of the world’s 1,862 publicly traded banks are truly big in terms of
either their share of the global bank assets or global GDP. These ratios would be even
larger if U.S. banks accounted for their derivatives under IFRS rather than U.S. GAAP
rules.

There are still other ways in which to rank the size of banks. Two of these ways are to
measure individual banks by their assets as a share of either total banking assets in their
home countries or as a share of their home-country GDP. There is a weakness with these
figures in that they do not allow us to distinguish between domestic and foreign assets of
the banks. To measure the importance of a bank within a country’s banking system we
should include only domestic assets but this figure is not available for all banks. We return
to banks’ cross-border activities in the next section on complexity.

The left-hand panel of Figure 7 shows the size of individual banks relative to total banking
assets in their respective countries. ING Groep NV tops the list, with 88 percent of
Netherland’s total banking assets. Charles Schwab Corporation in the United States
accounts for the smallest share, at 1 percent U.S. banking assets. The median share is 16
percent. Among U.S. banks, JP Morgan Chase was in first place with 13.5 percent of the
total. In the global context, however, JP Morgan Chase ranks only 57th among the world’s
biggest 100 banks. This means that the biggest U.S. banks are relatively small when

17
Beck et al. (2014) distinguish between growth in financial intermediation and growth of the financial sector
as a result of financialization and analyze how GDP growth depends on the two factors. They find that GDP
growth is strongly linked to financial intermediation while financialization is not.

14
compared to the world’s other 100 biggest banks on the basis of the share of an individual
bank’s total assets relative to all the banking assets in the bank’s home country.

The other way to compare individual banks is by their total assets relative to the home
country’s GDP.18 In this case, the right-hand panel of Figure 7 shows that Danske Bank
ranks number 1 with assets equal to 178 percent of Denmark’s GDP. Once again, Charles
Schwab Corporation is at the bottom of the list with total assets equal to a mere 0.9 percent
of U.S. GDP. The median ratio is 25 percent. JP Morgan Chase, with total assets equal to
13.6 percent of U.S. GDP, ranks 67th worldwide. In short: the biggest U.S. banks are
relatively small players in their own country when compared to many of their counterparts
elsewhere in the world. Thus, U.S. banks are less likely to be considered ‘too big to save’
than many smaller banks in smaller countries.

One last way to measure “bigness” is in terms of a bank’s equity capital relative to GDP as
in Figure 8. Dermine and Schoenmaker (2010, p. 2) point out that the ratio of equity capital
to GDP is a better indicator of relative size than the ratio of assets to GDP. Their
justification for using this ratio is based on the argument that it “…measures the unexpected
losses that could arise and the subsequent public bailout costs.” They add that “…the
equity-to-GDP ratio can be justified by the fact that, under Pillar 2 of the Basel 2 capital
regulation, banks must plan economic capital large enough to cover unexpected losses.” 19
Figure 8 shows that Charles Schwab Corporation in the United States has the lowest ratio
of equity capital to GDP at 0.07 percent. DBS in Singapore has the highest, at 10 percent.
The median for all 100 big banks is 1.7 percent. In the case of the United States, the three
banks with the highest ratios are Bank of America, JP Morgan Chase, and Citigroup at 1.5,
1.4, and 1.3 percent, respectively, all of which have ratios below the median.

Figure 9 provides information on the ratio of total equity capital of the world’s 100 biggest
banks to the GDPs of the countries in which the banks are headquartered. Austria has the
largest total equity capital-to-GDP ratio at 36.1 percent, while Australia has the lowest ratio

18
Of course, total assets include both domestic and foreign assets. One might wish to distinguish between
the ratio of domestic assets to domestic GDP and the ratio of foreign assets to the GDPs in which the assets
are located.
19
Appendix 2 presents similar information for both tangible equity capital and the market capitalization of
each of the world’s 100 biggest banks, both with respect to total assets and GDP.

15
at 1.1 percent. The United States ranks 12th of the 25 countries with a total bank equity
capital-to-GDP ratio of 7.7 percent.

Of course, “big banks” come in different shapes and sizes. Table 4 shows that the total
assets of the 15 biggest bank holding companies are $12 trillion, while the total assets of
all their FDIC-insured bank subsidiaries, excluding Charles Schwab Corporation’s
subsidiaries, are $8 trillion. It is clearly more accurate to compare the assets of a U.S. bank
holding company with those of a universal bank such as Deutsche Bank with its divisional
organization.20

But that does not mean the comparisons are strictly accurate. Regardless of how they are
organized, most of the world’s big banks have a mix of businesses with very different kinds
of assets as well as different involvement in cross-border activity. The mix of business
areas within a bank is one factor affecting its complexity. We turn to this issue next.

4. Dimensions of complexity
4.1. Complexity and systemic risk in the literature

In this subsection we discuss the link between complexity in our terminology and systemic
risk, and review recent literature on this topic. We then provide more detailed data on
dimensions of complexity with the FSB’s criteria for G-SIBs as a starting point.

Not surprisingly, financial markets assess the value of big banks in very different ways. In
the United States, for example, the ratio of market value to book value for the 15 biggest
banks ranges from a high of 3.66 for American Express, with a close second of 3.47 for
Charles Schwab Corporation, to a low of 0.74 for Bank of America, as of the end of the
second quarter, 2015. In addition to American Express and Charles Schwab Corporation,
eight other banks have market-to-book ratios of greater than 1.0: U.S. Bancorp (1.85),
Wells Fargo (1.62), State Street (1.45), Bank of New York Mellon (1.25), BB&T (1.21),

20
The distinction between universal banks and BHC organizations is becoming increasingly blurred since
many universal banks have adopted a holding company organization. For example, since 2014 the Swiss
UBS Bank is owned by a holding company, UBS Group AG. Within these holding company structures the
banks remain strongly integrated operationally and financially (Alexander, 2015). In the next section we
discuss this development as a source of complexity.

16
Goldman Sachs (1.09), PNC Financial (1.09), and JPMorgan Chase (1.08). In addition to
Bank of America, the other banks with ratios of less than 1.0 include SunTrust (0.97),
Morgan Stanley (0.93), Capital One (0.93), and Citigroup (0.77). The markets clearly
recognize that the 15 big U.S. banks represent a range of different business models, which
suggests that they should not be viewed as the same when it comes to tackling the problem
of too big to fail, especially any proposals to break them up.21

We summarize other factors that increase the systemic consequences of a bank’s failure at
a given size under the concept of complexity. In general terms, the systemic effects of a
bank’s failure would depend on the ability of a resolution authority to value the assets of
the failing bank, to identify the claims on the bank and their priority, and on the contagion
through interconnectedness to other parts of the financial system as a result of the failing
bank’s inability to satisfy claims from other banks and other financial institutions. These
factors are not independent. The magnitude of contagion through interconnectedness
would depend on the speed and reliability of the valuation of assets and the identification
of claims. The complexity of these tasks would increase with the nature and variety of
assets and liabilities as well as the organizational structure of the bank and its internal
information systems.

An important aspect of the complexity of a bank is lack of consistency between legal,

functional and financial organization. Carmassi and Herring (2015) emphasize that most
banks are organized functionally with little resemblance to the legal organization. As a
result the valuation and identification of a failing (legal) entity’s assets and liabilities
becomes time-consuming and complex.22 The operations of a failing functional entity may
be conducted in a large number of different domestic and foreign legal entities, which at
the same time serve other functional entities. Thus, one functional entity may not be easily
resolved in insolvency proceedings without dragging other functional entities into the

21
For additional information on different business models of European banks, see Ayadi, et al. (2012).
22
Carmassi and Herring (2013) discuss how the Lehman’s Brother’s bankruptcy was complicated and
contagious among different Lehman subsidiaries as a result of the way assets and liabilities were booked in
subsidiaries without correspondence to the functional organization.

17
proceedings. The complexity of resolution is amplified if the bank operates cross-border in
different legal jurisdictions.

Lack of financial independence of functional and legal entities can be added as another
source of complexity in resolution. It is common that a BHC issues a large part of the debt
that is being allocated to different functions and subsidiaries. It is also common that equity
investment in subsidiaries is debt financed by the parent. This financial complexity is a
source of financial contagion between separate legal entities.

Most large banks (G-SIBs) in the USA and Europe are legally organized in hundreds,
sometimes thousands, of legally separate subsidiaries with little resemblance to the
functional organization. In order to solve problems of excessive size and complexity we
have to understand why banks have grown to the size and complexity they have. Carmassi
and Herring (2015) refer to a number of possible reasons including economies of scale and
scope, regulation and tax rules. We return to these issues in Section 6 below.

As an illustration we show in Table 5 how J.P. Morgan Chase presents its functional
organization in its report for Q2 2015. The bank has four main functional areas; Consumer
and Community Banking, Corporate and Investment Bank, Commercial Bank and Asset
Management. In terms of assets the Corporate and Investment Bank is by far the largest
while the Consumer and Community Banking part is the largest in terms of net revenue.
These two functions are responsible for 77 percent of the net income. The four functional
areas generate most of the revenues and income but they cover less than 2/3 of total assets
and total equity.23

Table 6 shows that J.P. Morgan Chase has 5,272 subsidiaries, of which 3,003 are abroad.
What we cannot get a handle on from these data is if all these subsidiaries can be separated
into the same functional categories and if the subsidiaries in different countries represent
specific functions in those countries. 24 Table 5 shows how equity has been allocated to the

23
The remaining 1/3 of total assets are accounted for by the Corporate segment.
24
Non-financial multinational firms are often organized in such country-product matrices.

18
four functional areas but this does not mean that there are corresponding groups of
subsidiaries with these amounts of equity.

It can be noted at this point that J.P Morgan Chase along with most U.S. G-SIBs is not only
a BHC but it also qualifies as a Financial Holding Company (FHC) under U.S. Law. Unless
an FHC, a BHC owning a commercial bank is restricted in its ability to engage in business
activities other than banking or managing banks although non-depository subsidiaries can
engage in a greater variety of financial activities An FHC can engage in additional activities
such as securities dealing and insurance underwriting. Much of the growth in both size and
scope of U.S. BHCs has occurred since the Gramm-Leach-Bliley Act of 1999 made it
possible for BHCs to register as FHCs.

There are also FHCs in the U.S. such as Goldman Sachs, Morgan Stanley and J.P. Morgan
Chase, which act as merchants of physical commodities and energy. Omarova (2015) notes
that these activities expose the FHCs and, thereby, the financial system to risks that are
generally not considered financial.

Carmassi and Herring (2013) and Laeven, et al., (2014) use the number of subsidiaries of
a BHC as an important indicator of complexity. This measure clearly cannot capture all
dimensions of complexity. Its value as a proxy can be related to the lack of correspondence
between legal and functional organization. If the legal subdivision into subsidiaries had
corresponded to the functional subdivision of the firm a large number of subsidiaries could
have been an indicator of a simplified and more transparent organization since each legal
and functional unit could be resolvable as a stand-alone unit.

Laeven, et al., (2014) analyze the contribution of size and complexity factors to the
performance and systemic risk of over 300 banks in 52 countries during the crisis years
2007-2008. Systemic risk is measured as a bank’s SRISK defined as “a bank’s contribution
to the deterioration of the capitalization of the financial system as a whole during a crisis.”25
SRISK captures systemic risk by incorporating not only the bank’s stock volatility but also

25
Based on Acharya, et al., (2012).

19
the covariance with the market during a period of distress. In addition SRISK depends on
the bank’s leverage and size.

The regression analysis in Laeven, et al., (2014) uses SRISK during the crisis period as the
dependent variable and bank size and number of subsidiaries in 2006 as independent
variables. Both these variables have a significant positive impact on SRISK. Additional
results are that large banks contribute more to systemic risk when they have less capital,
fewer deposits as share of liabilities and when they engage more in market-based activities.

Gai, et al., (2011) take a very different approach to the analysis of systemic risk in large
and complex banks. They develop a network model wherein they study the interplay
between interconnectedness, concentration of liabilities and contagion within the financial
system in response to shocks. One shock is represented by a liquidity shock in the form of
a refusal of banks to lend to other banks (hoarding) and of difficulty to obtain liquidity by
issuing short-term debt. Another shock is an increase in haircuts on the assets bank use as
collateral in repo transactions. The complexity characteristics of a bank in the network are
captured by factors increasing intra financial activities such as the bank’s involvement in
securitization that lengthens the intermediation chain, the number of interbank unsecured
lending and borrowing links, the amounts of unsecured interbank lending and borrowing
and activities in repo markets with collateral. To arrive at numerical solutions the model
describes a network of 250 banks. The structure of this network and its interconnections
can be varied.

One result is that increased intra-financial system activity increases contagion of liquidity
and haircut shocks. Another result is that greater concentration at a given level of interbank
connections increases the fragility of the system. Concentration is relatively high if most
of the interbank connections occur among relatively few large banks. A third result is that
contagion depends on gross exposures unless the value of interbank connections can be
reduced through netting of gross-exposures of participants or through clearing through
central counterparties.

There are alternative measures of the systemic importance of banks. Zhao (2009)
compares three alternative measures in an Extreme Value Theory framework. The three

20
measures are PAO, the conditional probability of one more bank failure of one bank’s
failure,26 SII, a systemic impact index defined as the expected number of failures given a
bank’s failure, and VL, a vulnerability index defined as the probability of failure of a bank
if the system is in distress. These measures are estimated using data for 27 U.S. banks
during the period 1987-2002. The analysis indicates that none of the three measures is
significantly correlated with a bank’s size in the sample.

4.2. Dimensions of complexity across countries and banks

The FSB uses ‘complexity’ as one of several factors capturing systemic risk effects and for
the designation of some banks as G-SIBs. The same criteria for identifying G-SIBs are
used by the BCBS to determine the stricter regulatory capital requirements for such banks.
As shown in Figure 10, the G-SIB designation is based on five separate characteristics:
size, interconnectedness, substitutability and financial institution infrastructure, cross-
jurisdictional activity, and ‘complexity’. Complexity in the terminology of the FSB
depends only on OTC derivatives activity, trading and available-for-sale (AFS) securities,
and Level 3 assets (BCBS, 2014).

Complexity in the FSB’s terminology is strongly related to interconnectedness since

derivatives as well as trading activities, which are captured in complexity, explain a large
share of the number of links to other financial institutions (Blundell-Wignall and Roulet,
2013). The FSB measures interconnectedness using the wholesale funding ratio, and intra-
financial system assets and liabilities, as shown in Figure 10. Cross-jurisdictional activity
is also treated as separate from complexity. Such activity contributes strongly to
complexity as measured by the number of subsidiaries in the literature reviewed above.

Complexity also includes Level 3 assets, which are assets that are not traded in markets
and can be assessed in terms of “fair value” only by means of a bank-specific valuation
model. Traditional bank loans would be included in this category. They cannot be easily
valued and sold in bankruptcy. Thus, systemic risk arises both in traditional bank loans and
involvement in securitization and market-based activities more generally. The weights of

26
PAO was developed by Segoviano and Goodhart (2009).

21
different factors contributing to systemic risk are therefore important for the relative
systemic risk ranking of banks with different business models.

Substitutability captures that contagion to the financial and real sectors which depends on
the structure of the financial system and the existence of other institutions and services that
may substitute for operations of a failing bank. Substitutability would decline if a large
bank provides, for example, credit services through traditional bank lending as well as an
underwriter of securities. The separation of commercial and investment banking would
increase substitutability.

There is no similar international standard for the designation of a bank as a Systemically

Important Financial Institution (SIFI) as discussed in Chouinard and Ens (2013). Each
country chooses what is a SIFI and the specific regulation and supervision they are subject
to. In the U.S. the Dodd-Frank Act specifies an asset size of $50bn as the borderline for
being subject to special regulation and resolution procedures. The inconsistency between
the criteria for designations of SIFIs and G-SIBs is discussed in the Appendix.

Table 6 shows which banks are designated G-SIBs among the 100 largest banks along with
data on number of subsidiaries and cross-border activity. There are 28 G-SIBs and they are
the shaded banks in the table.

As already noted, cross-border comparisons of complexity and systemic risk are difficult
at either the individual or aggregate bank level. Largely because of differences in regulation
between countries, the assets of big banks can include different mixtures of bank loans,
securities, insurance policies and other products (see Barth, Caprio and Levine, 2006). This
diversity is wide even among U.S. bank holding companies. Table 7 shows the composition
of assets and liabilities of the world’s 100 largest banks. It can be seen that the share of
traditional bank assets (loans) and liabilities (deposits) varies even more across countries
than across banks. The composition of revenues varies as well, as shown in Table 8. Non-
interest revenues and gains from trading and derivatives activities play a much greater role
for U.S. and UK banks than for most other large banks with the exception of the two large
Swiss banks and Deutsche Bank. Table 8 shows, moreover, that the big banks also display
major differences in Tier 1 capital regulatory ratios.

22
Tables 6, 7 and 8 include items that can be used to describe complexity according to our
more general terminology incorporating organization that takes the form of subsidiaries,
cross-border activity, interconnectedness and involvement in market-oriented, non-
traditional banking activities. Our data are limited to complexity factors that are available
for the 100 largest banks.

Table 6 shows the number of domestic and foreign subsidiaries of the 100 largest banks
and the number of countries in which each bank operates. We do not have data for the
relative size of foreign operations for all these banks, but Figure 11 shows the importance
of foreign operations for a select group of the banks from the U.S., China and Japan. One
panel shows the share of revenues originating abroad and the second panel shows the share
of assets abroad. Japanese and the Chinese banks have the smallest shares of foreign
revenues and assets in spite of their greater size compared to American banks. In what
follows we limit the analysis of the foreign dimension of complexity to the number of
foreign subsidiaries.

Table 7 shows interconnectedness in interbank lending, derivatives and trading, Non-

traditional banking and market-oriented activities are represented by securities on the asset
side and short- and long-term borrowing as well as derivatives and trading on the liability
side. Table 8 includes non-interest income and net gains and losses from derivatives and
trading.

Table 9 shows the correlation among the characteristics of the top 100 banks in Tables 6,
7 and 8. Only one of the characteristics associated with complexity, derivatives and trading
in percent of total assets in Table 7, is significantly correlated with the size variable, total
assets. The same variable is positively correlated with securities (in percent of total assets),
the regulatory capital ratio and non-interest income/gross revenue. The variable is
negatively correlated with net loans, deposits, the equity ratio, return on assets, and return
on equity and interest income/gross revenue. These correlations imply that banks with large
trading and derivatives activities are also the banks that are least involved in traditional
banking in the form of loans and deposits. The same banks seem to have relatively low
returns on assets and equity, low equity ratios but high regulatory capital ratios.

23
Another variable of interest is short term borrowing in markets as opposed to deposit
financing. This variable is significantly positively correlated with securities, non-interest
income and net gains on trading and derivatives. In other words, relatively complex banks
as a result of involvement in non-traditional banking rely more on non-deposit funding.
This conclusion is substantiated with the negative correlations with Net Loans, deposits,
and interest income.

Interbank lending is positively and significantly correlated only with deposits and
negatively correlated with net loans and long-term borrowing. Thus, increased interbank
lending finance with deposits occurs at the expense of regular loans.

The number of subsidiaries is not included in the correlation table but separate analysis of
the relationship between size and the number of subsidiaries reveal that these variables are
significantly and positively correlated. More specifically, the log of the number of
subsidiaries is regressed on the log of total assets and there is a significantly positive
relationship, as shown in Figure 12. Laeven, et al., (2014) found that both these variables
are significant explanatory factors for systemic risk.

These results confirm the findings of Laeven, et al., (2014) and Zhou (2009) that size is not
correlated with complexity in all its dimensions. The only significant positive correlations
are with the number of subsidiaries, and derivatives and trading positions. Other
dimensions of complexity are correlated to some extent with each other indicating that
banks with relatively little involvement in traditional banking are strongly involved in
securities markets, and in derivatives and trading.

We have discussed factors affecting a bank’s contribution to systemic risk conditional on

the bank’s failure. The risk associated with a particular bank depends also on its probability
of failure. We ask next if the factors associated with size and complexity also affect banks’
risk of failure.

Table 10 shows the results of regressions with each bank’s accounting based Z-score and
each bank’s return-on-assets (ROA) as dependent variables. The data refers to the 100

24
banks in 2014 27 . The independent variables capturing complexity are limited to the
variables with observations for all the 100 banks. The Z-score for a bank serves as a proxy
for its distance to default. The hypothesis is that a larger bank and a more complex bank
enjoys greater implicit protection by its government. As a result larger and more complex
banks are expected to have lower-scores. The results in Table 10 support this hypothesis
partially although size is insignificant. Complexity is assumed to be decreasing in
deposits/total assets and in loans/total assets but increasing in non-interest income and
number of subsidiaries. Therefore, we expect more risk-taking (lower Z-scores) in banks
with less deposit financing, less loans, a greater share of non-interest income and a greater
number of subsidiaries. The hypothesis is supported for deposits/total assets, non-interest
income/total revenues and number of subsidiaries. The hypothesis is not supported for the
loan variable but it can be noted that the correlation between loans/total assets and interest
income/total revenues is positive and significant in Table 9.28

The regressions with ROA as dependent variable shows that coefficients for the deposit
variable and leverage are positive and significant, while the coefficients for Tier 1 capital
and loans/total assets are negative and significant. Size and number of subsidiaries are
insignificant. As a whole these results do not indicate that size and complexity are related
to ROA.29

In conclusion, we note that several variables indicating high complexity are associated with
relatively high bank risk as well as systemic risk. Laeven, et al., (2014) found that size,
number of subsidiaries and involvement in market-based activities increased systemic risk.
With the exception of size, our results indicate that these variables are also associated with
greater bank risk.30

27
The Z-score for a bank is calculated as the accounting return-on-assets plus the capital-asset-ratio divided
by the standard deviation of the return-on-assets for the period 2009-2014.
28
Blundell-Wignall and Roulet (2013) find that distance to default of large banks during the period 2004-
2012 was decreasing in the share of wholesale funding and derivatives activity but increasing in trading
activity. We return to these results in the discussion of separation proposals below.
29 A referee has pointed out that ROA might explain size and complexity instead.
30
In Appendix 2, we discuss a group of banks that generally are perceived as relatively risky because they
are owned by industrial companies. We argue that they seem to be less risky since they are subject to market
discipline. These banks did and are still likely to exist without the implicit protection of the government.

25
5. Addressing ‘too big to fail’ and complexity

The purpose of the regulatory reforms being proposed or already being carried out is to
prevent future banking crises whenever possible and to lessen the severity of those that do
occur.31 ‘Too big to fail’ is viewed as a source of implicit protection of banks’ creditors
and, thereby, excessive risk-taking that contributes to the likelihood of a crisis. This
situation is exacerbated, moreover, due to the moral hazard that arises when bank
depositors are protected from losses by a government deposit insurance system.
Complexity of bank organizations is also viewed as a source of excessive risk-taking as a
result of opaqueness to supervisors and resolution authorities, as well as to other actors in
the financial system. The problems associated with the resolution of large and complex
banks may increase the severity of a crisis and the fiscal costs of crisis management.

The reforms attempt to tackle too big to fail in four ways: 1) restricting the size of banks;
2) restricting the scope of bank activities through separation of different activities into
separate legal and functional entities (ring-fencing); 3) requiring higher capital levels for
systemically important institutions; 4) providing an orderly framework for shutting down
and resolving troubled banks while minimizing the risk of contagion. We discuss these
types of reforms in sub-sections below.
The different approaches are not entirely independent. Restrictions on scale and scope can
be difficult to separate. Some reform proposals may have effects in more than one of these
dimensions. For example, so-called Living Wills may affect both the scope and scale of
activities, and the ability of authorities to resolve a failing bank. In a fifth subsection we
address complementarity and various combinations of the four approaches.

5.1. Restricting the size of banks

The first type of reform involves restricting the size of banks. Dodd-Frank limits the size
of banks by prohibiting bank mergers or acquisitions if the resulting bank would hold more
than 10 percent of total nationwide bank deposits or more than 10 percent of the aggregate

31
This section draws upon Barth, Prabha and Swagel (2012).

26
consolidated liabilities of all financial companies. These limits could impede future
mergers and acquisitions in the banking industry.32

Table 11 shows the potential impact of the merger restriction based on deposits in the U.S.
Only the largest U.S. bank, JP Morgan Chase, already exceeds the limit on deposits and,
therefore, would be prohibited from any further external growth. Other banks on the list
still have room for expansion, but it would be limited. Meanwhile, U.S. Federal Reserve
Governor Tarullo has suggested limiting non-deposit liabilities of U. S. banks to a specified
percentage of U.S. GDP. Table 11 also shows the potential impact if those liabilities were
limited to 2 percent of GDP, as proposed by some lawmakers in the Safe, Accountable,
Fair and Efficient (SAFE) Banking Act of 2012. 33 Under that requirement, five banks
would be immediately prohibited from any further mergers and acquisitions. Another ten
banks would have some leeway for further external growth.

Johnson and Kwak (2010, pp. 214-215) also state that “the simplest solution [to the TBTF
problem] is a hard cap on size: no financial institution would be allowed to control or have
an ownership interest in assets worth more than a fixed percentage of U.S. GDP.” They
add that “as a first proposal, this limit should be no more than 4 percent of GDP, or roughly
$570 billion in assets today.” For investment banks, they state that “as an initial guideline,
an investment bank (such as Goldman Sachs) should be effectively limited in size to 2
percent of GDP, or roughly $285 billion today.” Based upon GDP in the second quarter of
2015, 4 percent amounts to $716 billion. Table 11 shows that JP Morgan Chase and Bank
of America are the only two banks that have assets that exceed this amount. Moreover,
Goldman Sachs and Morgan Stanley both have assets that exceed 2 percent of GDP, or
$358 billion.

In an international comparison of bank size relative to GDP the largest U.S. banks are
relatively small, as shown in Figure 7. Thus, size restrictions like those discussed in the
U.S. would have drastic consequences in smaller countries where banking systems are

32
The Dodd-Frank Act provides exceptions to these limits in the case of mergers and acquisitions of troubled
institutions.
33
This is a bill introduced by Senator Sherrod Brown (see
http://www.brown.senate.gov/newsroom/press/release/brown-introduces-bill-to-end-too-big-to-fail-
policies-prevent-mega-banks-from-putting-our-economy-at-risk).

27
more concentrated and even the relatively large banks in those countries are smaller than
those in the U.S. Another way to say this is that such restrictions cannot be considered
realistic in many countries outside the U.S.

The problem, of course, is that there is no bright line that enables one to easily distinguish
between big banks that pose a systemic risk and those that do not pose such a risk. To the
extent that the demarcation line that is chosen is then adjusted to account for different
degrees of “bigness”, the end result might once again lead back to a too big to fail problem.
Indeed, the G-SIBs identified in Table 2 are of different asset sizes and some of these banks
are smaller than other banks not identified as so. Moreover, some of the U.S. banks are
identified as G-SIBs even though their asset size is substantially less than 4 or even 2
percent of U.S. GDP.

A potential cost of limits on size is that they could reduce economies of scale in banking,
not to mention economies of scope since increasing size often is associated with
diversification from, for example, traditional banking to more market-based activities.
Thus, size limits could increase the cost of banking services unless economies of scale and
scope are not generated by reduced funding costs from being ‘too big to fail.’ In this regard,
Wheelock and Wilson (2012, p.171) found that “…as recently as 2006, most U.S. banks
faced increasing returns to scale, suggesting that scale economies are a plausible (but not
necessarily the only) reason for the growth in average bank size.” In addition, Hughes and
Mester (2011, p. 23) found “…evidence of large scale economies at smaller banks and even
larger economies at large banks….” They added that these measured economies of scale
did not result from implicit subsidies from being considered “too big to fail”. To the extent
that U.S. banks are limited in size, they may also be at a competitive disadvantage to the
big banks in other countries that do not impose such limits. The implication is clear: one
should not rush to limit bank size unless one can be confident that the benefits outweigh
the costs.34 International comparability of limits to bank size should also be considered.
To the extent that increasing scale is associated with diversification into additional
financial services we must consider the evidence with respect to economies of scope.

34
See Saunders and Walter (2010) for a more general discussion on this issue.

28
5.2 Restrictions on the scope of activities

The second type of reform involves requiring banks to legally and functionally separate
certain particularly risky activities or simply barring banks from those activities altogether.
The Liikanen report produced by the European Commission proposes the separation of
proprietary trading of securities and derivatives, and certain other activities linked to those
markets, from deposit-taking banks within a banking organization.35 The Vickers report
proposes ‘ring-fencing’ of retail banking from wholesale/investment banking in the UK.
The ‘ring-fenced’ banks would take retail deposits, provide payments and services, and
supply credit to households and businesses. In the U.S., the Volcker Rule under Dodd-
Frank prohibits an insured depository institution or its affiliates from engaging in
“proprietary trading.” It also prohibits insured institutions from sponsoring or acquiring
ownership interests in hedge funds or private equity funds.36

There are several theoretical arguments underlying the mentioned separation proposals.
One is that simpler banks pose less risk to the financial system and the broader economy,
because some activities are inherently more risky and simpler organizations are more
transparent for both market participants and bank supervisors. A second argument is that
banks involved in, for example, investment banking and trading benefit from deposit
insurance systems, which are intended to primarily protect creditors in the retail banking
system. A third argument is that operational and financial separation of non-traditional
banking activities would simplify resolution and allow entities involved in these activities
to fail without the need to bail-out creditors. Thereby, market discipline on risk-taking in
these activities would be strengthened. In this sense restrictions on activities can be viewed
as complimentary to resolution procedures.

If these arguments in favor of restrictions on activities are accepted it is still necessary to

balance the benefits against potentially lost economies of scope. According to Laeven, et
al., (2014) there is evidence that there are diseconomies of scope when banks move from

35 See Freshfields Bruckhaus Deringer, “Structural reform of EU banks: The European Commission’s
Liikanen proposals”, February 2014.
36
The so-called Lincoln Amendment in the Dodd-Frank withholds FDIC insurance and Federal Reserve
borrowing from derivatives dealers, which may force banks to establish separate affiliates in which to engage
in many derivatives activities.

29
traditional commercial banking into market based activities. These diseconomies would be
generated by agency costs (Boot and Ratnovski, 2012) and potential conflicts of interest
(Schmid and Walter, 2009). On the other hand, a large literature following Kroszner and
Rajan (1994) points to information advantages of banks involved in both traditional
banking and market-based activities.

The verdict on economies of scope and which particular activities benefit from economies
of scope is still out. This is an argument for allowing the market to determine the most
efficient organizational structure. However, the market will accomplish this only if there
are no implicit subsidies in banking and banks are allowed to fail with consequences for
shareholders and creditors.

The argument that ring-fencing of commercial banking from market-based financial

services would enhance market discipline by removing explicit and implicit government
support from market based activities can also be questioned. The argument is based on the
premise that governments are compelled to bail out commercial banks as sources of
contagion but not financial firms involved in market-based activities. The financial crisis
of 2007-2009 demonstrated that financial system contagion occurs through market-based
activities as much as from traditional commercial banking. The pressure on governments
to bail out, for example, investment banks may be as large as the pressure to bail out
commercial banks. The Lehman Brothers experience may have strengthened this pressure.
If so, the remaining benefits from ring-fencing could be increased transparency and lower
resolution costs, while the costs could be reduced economies of scope.

Goodhart (2014) notes that proposals to dismantle universal banks into separate retail and
wholesale parts are based on a “misreading of causes of the financial crisis.” Similarly, the
Volcker rule has been motivated by an opinion that proprietary trading was a significant
factor in the recent financial crisis. However, the losses that led to problems at Lehman
Brothers, Bear Stearns, IndyMac, Washington Mutual and other failed institutions were
mainly connected to mortgage-backed securities and real estate, rather than to losses from
the kind of trading that would be targeted by the Volcker Rule.37 Nor is there clear evidence

37
See Barth, et al., (2009).

30
that separating commercial banking from investment banking as suggested by the Vickers
report would increase safety. Despite strong separation between the two businesses in the
1980s under the Glass-Steagall Act, several big banks nevertheless almost failed because
of bad loans in Latin America. Likewise, legions of savings-and-loans failed due to real
estate loans. This suggests it is unlikely that simply reinstating Glass-Steagall would
prevent problems at big banks in the future. In a sense, it is not even easy to pinpoint the
problem that the Volcker Rule would solve. This is not to say that there could not be
benefits from it. On the face of it, simpler institutions may become more transparent, less
prone to excessive risk-taking and less subject to conflicts of interest. On the other hand,
regulated reorganization may lead to a conflict relative to incentives to exploit economies
of scope. If so banks may try to avoid consequences of regulation in non-transparent
transactions and activities.

Some evidence regarding trading losses might be helpful in this regard (see Barth and
McCarthy, 2012). Since 1990, there have been 15 instances when traders at different firms
lost at least $1 billion (in 2011 dollars). The losses totaled nearly $60 billion and ranged
from a low of $1.1 billion on ill-fated foreign exchange derivatives at a Japanese subsidiary
of Shell Oil to a high of $9 billion on credit default swaps at Morgan Stanley. Four of the
firms were banks, two were investment banks, two were hedge funds, one was a local
government, and six were manufacturing or petrochemical firms. In other words, almost
half the losses were not at financial services firms but at institutions that typically use
financial products for hedging purposes. 26 percent of the losses occurred at manufacturing
and petrochemical firms and local governments. The remaining 74 percent occurred at
financial services firms – 33 percent at banks, 21 percent at hedge funds, and 20 percent at
investment banks. It is quite clear that the proprietary trading problem is not limited to
banks.

While the magnitude of these losses was staggering, that was only a small part of the story.
A smaller trading loss that jeopardizes a firm’s entire equity capital poses a greater threat—
to the institution itself, to other market participants, and (in the case of banks) to the federal
Deposit Insurance Fund and to taxpayers—than a bigger trading loss at a larger and better-

31
capitalized firm. The latter firms are better able to sustain trading losses, and thus less likely
to fail and present costs to counterparties.

Look at the same 15 losses above in relation to the equity those institutions had at the time.
As Figure 13 shows, the losses at the banks were less threatening to financial stability than
those at the non-bank firms. Relative to equity, the largest losses were at non-banks. Thus,
the Volcker Rule may be targeting the wrong firms. The more regulators limit banking
activities, moreover, the more likely they are to create incentives for those same activities
to take place at non-banking firms or offshore firms. Already there have been indications
that proprietary traders are moving from banks to non-banks. Given that the hedge funds
suffering major losses over the past 20 years either failed or required bailouts, this may not
be a good thing for financial stability. More generally, the so-called shadow banking
system may benefit by gaining additional business from banks as more stringent
regulations curtail their size and scope of activities. In the process, however, risks may also
shift from the banking industry to the shadow banking system.

Furthermore, as noted in Swagel (2011), the Volcker Rule is likely to both reduce liquidity
and increase transaction costs. That would translate into less investment, slower economic
growth, and less job creation.38 This concern is implicit in the exemption with respect to
trading in Treasury securities. It is also implicit in the entreaties of domestic state and local
borrowers, and of foreign governments, for similar treatment. There may be benefits to
separating certain derivatives activities from bank holding companies but regulators have
found it difficult to implement these provisions of Dodd–Frank, in part because of concerns
about both the costs and benefits.

The role of trading activities and derivatives in the financial crisis has been analyzed in
Blundell-Wignall and Rouet (2013). They estimate the effects of business model
characteristics on ‘Distance to Default’ for 108 U.S. and European banks during the period
2004-2012. The business model is captured by the relative size of the ‘trading book plus
available for sale securities’, wholesale funding as a share of total liabilities, and the gross

38
The liquidity of corporate bond trading would also be limited by the proposals in the Liikanen and Vickers
reports, which would increase the cost of bond financing relative to bank financing.

32
market value of derivatives as a share of total assets. They find that the distance to default
is increasing in the relative size of the trading book while the share of wholesale funding
and the gross market value of derivatives reduce the distance to default. These results hold
also in a separate analysis of G-SIBs. The authors point particularly to banks’ involvement
in derivatives as a cause of high default risk while banks with large trading books faced
less default risk.

The post-crisis regulatory regime embodied in the Dodd–Frank Act does not seek to break
up big banks or to reinstitute Glass-Steagall barriers between commercial and investment
banking. This perhaps reflects the observation that the failures of banks in the crisis are not
well correlated with the end of the Glass-Steagall restrictions. Bear Stearns and Lehman
Brothers both suffered failures but both were essentially pure investment banks. By
contrast, JP Morgan Chase combined investment and commercial banking but weathered
the crisis well. An alternative to Glass–Steagall-like restrictions would be for regulators to
focus on activities that appear to pose particular risks, and to act more pre-emptively to
head off systemic problems. This approach is embodied in the creation of the Financial
Stability Oversight Council (FSOC), an umbrella group of federal regulators that is meant
to watch over the entire financial system. One, however, is right to question whether this
new approach will indeed be successful. 39 Blundell-Wignall and Roulet (2013) also
question the separation approaches as an instrument to reduce systemic risk. They, along
with the OECD (2009), recommend instead evidence-based limits on derivatives positions
(in terms of gross market value) and wholesale funding.

The relatively strong case for separation in the form of operational and financial ring-
fencing exists for cross-border banking since there is no agreement on how to coordinate
conflicting interests and resolution procedures. The case for economies of scale and scope
across borders appears weak. Operational ring-fencing would make it possible to allow an
entity in one country to fail without serious operational repercussions for other parts of a
financial group. New Zealand has implemented an operational ring-fencing rule stating that
subsidiaries of foreign banks must be operationally separable within 24 hours. Financial

39
For further discussion of this and related issues, see Barth, Caprio and Levine (2012).

33
ring-fencing would protect the capital of a bank in one country from failures in other
countries. Several countries including the U.S. has implemented such ring-fencing for
foreign branches as well as subsidiaries.

“Living wills” or Recovery and Resolution Plans can also be viewed as instruments to
separate different financial activities in order to protect core activities of banks in distress
and to simplify resolution of a failed bank. We return to “Living wills” in Section 5.4
below.

As a general observation, complexity would be reduced by greater correspondence between

functional and legal organization. To achieve such reorganization based on scale and scope
economies among functions it is necessary to obtain a better understanding of why banks
choose to organize with great complexity. As noted, Carmassi and Herring (2015) refer to
banks’ ability to take advantage of regulatory frameworks and tax rules in combination
with economies of scope and scale to explain the current structure, but explicit knowledge
of this issue is lacking.

5.3. Requiring higher capital levels for systemically important banks

The third type of reform involves requiring banks to hold additional equity capital. 40 This
is meant to ensure that firms have a bigger buffer against losses and a greater ability to
survive a crisis. More equity capital would also provide more protection for taxpayers
against future bailouts. Table 12 shows the guidelines for new and more stringent capital
requirements under Basel III that are phased in over the period 2013 to 2019. As may be
seen, the leverage ratio will be 3 percent in 2019, while the risk-based capital requirement
will be as high as 13 percent for some banks, and even as high as 16.5 percent for G-SIBs.
The FSB, moreover, has confirmed its final proposal for Total Loss Absorbing Capacity
(TLAC) calling for G-SIBs to hold, on top of the required minimum CET1 of 4.5 percent,
an additional 11.5 percent of “loss absorbency” in the form of Tier 1 and Tier 2 capital
relative to risk-weighted assets, rising to 13.5 percent by 2022. Importantly, TLAC is

40
Also introduced were a liquidity coverage ratio (intended to provide enough cash to cover funding needs
over a 30-day period of stress) to be phased in from January 1, 2015 to January 1, 2019 and a longer-term
net stable funding ratio (intended to address maturity mismatches over the entire balance sheet) to take effect
as minimum standard by January 1, 2018.

34
focused on meeting this requirement in part through long-term, unsecured debt that can be
converted into equity when a bank fails or reaches a critical market-value trigger
(contingent convertible debt or CoCos41). This is meant as an additional measure to put an
end to “too big to fail” by forcing bondholders to inject capital into a big bank that fails
rather than taxpayers. The identification of the G-SIBs banks is based upon a variety of
factors as described in Figure 10 in Section 4.

In a first, the Basel III agreement among international bank regulators, as just noted, calls
for a minimum leverage ratio. This ratio is not risk-based, like the other capital guidelines.
According to Haldane (2012, p. 19), “…the leverage ratio [should play] the frontstop role
[in Basel III] given its simplicity and superior predictive performance.” He adds that “the
more complex the bank, the stronger is this case.” Furthermore, we concur with Hoenig
(2012), who states that “an effective capital rule should result in a bank having capital that
approximates what the market would require without the safety net in place. The measure
that best achieves these goals is what I have been calling the tangible equity to tangible
assets ratio.” During the U.S. financial crisis, this seemed to be the only ratio that anyone
paid attention to insofar as banks in general were amply capitalized by nearly all the other
capital ratios.

It is useful to consider the impact of the leverage ratio on the 15 biggest U.S. banks when
total assets are calculated with derivatives reported on a gross rather than net basis. Figure
14 shows there is a substantial difference in the amount of assets per dollar of equity – the
leverage – depending on which method is used to measure derivatives. Using U.S. GAAP,
JP Morgan Chase’s equity capital would be wiped out if it suffered a 9.8 percent decline in
assets. But under IFRS, its equity capital would be wiped out by a 7.2 percent decline in
assets. Similar calculations but with slightly smaller impacts apply to Bank of America and
Citigroup. Once again, this demonstrates the importance of the accounting treatment of
derivatives. Although no official decision has been made, it seems likely that the Basel III
leverage ratio will be based on net derivatives, as in Basel II.

41
See Calomiris and Herring (2013).

35
In connection with the difference between U.S. GAAP and IFRS it can be observed that
American G-SIBs are subject to a higher leverage ratio than what is proposed in Basel III
and will be implemented in the EU. The U.S. applies a one percentage point higher G-SIB
surcharge. Also, BHCs with consolidated assets greater than $250 billions must calculate
total risk-weighted assets as the maximum of risk-weighted assets under the advanced and
standardized approaches. The former is based on internal models and includes both on-and
off balance sheet exposures.

Additional capital requirements for big or systemically important banks provide a

disincentive for size (and perhaps also for complexity or interconnectedness). These
requirements might also be seen as a “tax” that offsets the possible funding advantages of
big and complex banks—a disincentive for size and complexity as defined by the criteria
for G-SIBs and SIFIs. How blunt this “tax instrument” is as a disincentive for size and
complexity depends on how capital requirements depend on size and complexity. SIFIs are
so far identified primarily by size, as noted in Appendix, while G-SIBs are identified by
complexity characteristics as well. We have discussed the difficulty of analyzing the
relation between complexity and systemic risk. Another difficulty is to specify a
relationship for the marginal tax (capital requirement) of increasing size and complexity.
If a tax is imposed only at specific size and complexity triggers, the marginal tax of
increasing size and complexity beyond the trigger is zero. In this case the capital
requirement tax is ineffective as a disincentive to increase size and complexity. The extra
capital requirement tax becomes primarily a payment for the latent negative externality,
though the implicit revenue from the tax accrues to private suppliers of capital rather than
to the government.

As already noted, it should be kept in mind that big banks provide benefits as well as costs
to society, a point discussed by the Clearing House Association (2011) and by Swagel
(2011). Moreover, the capital charge, as usual with a tax, results in a deadweight loss in
the form of reduced lending and economic activity. The quantitative importance of this
impact remains a subject of considerable debate. Admati et al. (2010, 2013) see little
negative impact of higher capital requirements and recommend an equity ratio as high as
30 percent. Miller et al. (2013) argue along with Admati et al. that an optimal capital ratio

36
is much higher than current levels. But Kashyap, Stein, and Hanson (2010) see a
meaningful impact on bank funding costs during the transition period as banks raise
additional equity capital, and then a modest ongoing impact. Research by regulators points
to modest impacts, while banks and their associations point to greater impacts. In the wake
of the recent crisis, it is certain that big banks will hold more capital, both at the insistence
of regulators and of their own volition. Given the considerable changes in the banking
industry and its more stringent regulation, the ongoing impacts of higher capital standards
will be understood only over time.

One danger of setting the capital requirement very high as recommended by Admati, et al.
(2010), is that it creates a large discrepancy between required and desired equity financing.
Such a discrepancy is likely to create strong incentives to manipulate, evade and avoid the
requirement. The stronger these incentives are the greater are the costs to supervise and
examine banks’ compliance with the regulation. These costs are likely to be particularly
high within the Basel Capital Accord framework for risk-weighting based on internal
models that enable substantial manipulation of risk-estimates.42

5.4. What To Do About Big Bank Failures?

The fourth type of reform involves changes to the framework for dealing with the collapse
of big or systemically important banks. There are two motivations behind such policies:
first, to better ensure the stability of the system; second, to alert market participants that
banks are more likely to be allowed to fail and that creditors will be forced to take losses.
That awareness may help remove advantages that big banks have previously enjoyed by
being perceived as too big to fail and, thereby, strengthen market discipline on banks’ risk-
taking.43 We have noted that such discipline is necessary if banks are to exploit economies
of scale and scope effectively (i.e., without aiming for scale and complexity in order to
enjoy an implicit subsidy for debt financing).

42
Tables 13 and 14 provide information on factors that countries consider in assessing systemic risk as well
as the tools that are used to oversee more closely and/or limit the activities of large/interconnected
institutions.
43
See Mullineux, 2012, for a discussion of the role of governance with respect to too big to fail banks.

37
The Dodd-Frank Act requires banks to devise their own “living wills,” or plans for possible
recovery of a bank’s core business by disinvestment in other financial activities and an
orderly shutdown if the bank actually fails. This could prove to be a symbolic step, because
no one knows how or if the plans will work in the event of an actual crisis. Even so,
however, the preparation of a living will may provide an additional signal that regulators
will let banks collapse rather than bail them out in the future. Living wills are subject to
regulators’ approval and they allow regulators to intervene to separate activities. Thus, the
living wills have the potential to lead to a process of reduced complexity and greater
correspondence between legal and functional organizations.

The new orderly liquidation authority in the Dodd–Frank Act, as well as the Bank Recovery
and Resolution Directive within the EU’s banking union, could fundamentally change the
way in which failures at big banks are resolved. 44 As noted earlier, it could also have
profound impacts on the cost of funding for big, complex banks. Bondholders and other
creditors are now more likely to incur losses if a bank fails, even though the Act allows for
the deployment of government resources to support a bank and slow its demise through the
Orderly Liquidation Fund. Absent additional congressional action (which is now hard to
imagine, given the unpopularity of the Trouble Asset Relief Program, TARP), in the case
of a future failure of a big bank that involves the resolution of the holding company beyond
simply the insured depository institutions, bondholders will incur losses. The EU’s Bank
Recovery and Resolution Directive also allows for the deployment of a fund in resolution
while specifying a minimum of “bail-in” of unsecured creditors.

It is difficult to predict how the new resolution authority under the Dodd-Frank Act and
the Single Resolution Mechanism in the EU will be used.45 In the U.S. it seems likely that
FDIC would initially deploy public funds to prevent a repeat of the crisis that followed the
collapse of Lehman Brothers. The FDIC might then use its new authority to arrange a debt-
for-equity swap that recapitalizes the failing bank, turning the former bondholders into the
new owners. Such a debt-for-equity recapitalization would be similar to a pre-packaged

44
For a discussion of resolution procedures in other countries, see Wihlborg (2012).
45
Brown and Dinc (2011) find that a government is less likely to take over or less likely to close a failing
bank if other banks in that country are weak. They further argue that this Too-Many-To-Fail effect was
present in the U. S. Savings and Loan Crisis of the 1980s and the Japanese Banking Crisis of the 1990s.

38
Chapter 11 reorganization under the bankruptcy code, but the new authority would allow
this to be done faster and with the government providing the equivalent of debtor-in-
possession financing. Losses to the government would be borne by bondholders. The
resolution authority provides government officials with an open checkbook to act through
the troubled bank, with bondholders picking up the tab. It seeks to narrow the FDIC’s scope
of action by guaranteeing bondholders that they will receive as much through the resolution
as they would have through a bankruptcy. Whether a debt-for-equity recapitalization is
superior to a bankruptcy remains an open question until such a recapitalization of a troubled
bank is actually attempted.

The possibility of having such a swap imposed on them should affect the terms under which
potential creditors, such as bond buyers, are willing to provide funding to banks that might
be put through a resolution. One risk is that the new resolution authority could give
providers of funding an incentive to flee at the first hint of trouble. The threat of such bank
runs is an important disciplining device, but it could also lead to more hair-trigger
responses and inadvertently prove destabilizing.

Either way, however, the resolution authority will be incomplete and perhaps unworkable
until there is more international coordination of bankruptcy regimes. In the case of
Lehman’s failure, for example, the U.K. bankruptcy regime disrupted the operations of
many U.S.-based firms when it froze their overseas assets. Figure 11 in Section 5 shows
the degree to which the biggest U.S. banks work broadly across the global financial system.
Of the 13 U.S. banks on our list for which information is available, seven have foreign
assets. Among the latter banks, Citigroup has the largest share of foreign assets at 46
percent, while Capital One has the smallest share at 4.5 percent. (Similar data are presented
in the figure for revenue).46

International coordination of regulatory regimes for both normal times and during
resolution or bankruptcy procedures will be crucial for the continued evolution of the

46
To repeat an earlier point, to the extent that any limits on asset size adversely affect foreign assets, there
may be a cost in terms of geographical diversification. The ability of banks to service their customers that
operate more globally may also be curtailed in this case.

39
global financial system. 47 As Brummer (2012, p. 250) points out, “In the absence of
detailed, prescriptive global standards, national regulators enjoy considerable discretion
with regard to their local approaches. In practice, such flexibility means any one country’s
efforts to deal with the problem can potentially be undercut by another country’s inaction.”

One aspect of international coordination is the issue of single-entry point vs multiple entry
point resolution. Strongly integrated banks without clear separation of banks across
countries and activities require single-entry point resolution. To achieve agreement on a
single entry point for international banks it is necessary that regulators in countries where
the banks are operating mutually recognize resolution regimes. Conflicting interests of
countries in a crisis situation implies that such mutual recognition is currently not in sight.

The organizational complexity discussed here has led to a discussion of “single-entry

point” vs. “multiple entry point” resolution procedures. A single entry point for a large
global bank implies recognition of the near-impossibility of resolving individual functional
and legal entities. It is clearly appropriate if a bank is organized as a universal bank
supplying a variety of financial services within different divisions of one legal unit. The
different divisions can be thought of as branches without financial independence and
functionally integrated to the extent there are economies of scope to be exploited.

At the other extreme of bank organization we can imagine a large number of subsidiaries
defined by separate functions. Firewalls would separate the operations and the subsidiaries
would be responsible for their own debt financing. The different units would essentially be
stand-alone units with common ownership. Multiple entry point resolution is appropriate
for this type of organization. There would be relatively little complexity since each legal
unit could default on its own without severe repercussions for other subsidiaries within the
banking group. On the other hand, in this organization economies of scope between
functional areas cannot be exploited. The systemic risk consequences of a failing entity
within this kind of bank organization are relatively easier to manage.

47
See, for example, Prabha and Wihlborg (2012) for a discussion of this issue as it relates to global bank
organizational structure.

40
A key problem facing the Orderly Liquidation procedures in the U.S. as well as the bail-in
rules in the EU’s Single Resolution Mechanism is to achieve credibility that creditors of
large banks will not be bailed out in a crisis. Loopholes in the rules for activation of the
procedures will always exist and allow regulators to bailout creditors for fear of contagion.
It is possible that a large bank must fail without bailout in order to achieve credibility of
the resolution procedures.48

5.5. Combination Reforms

We have already emphasized the complementarity between reforms for ring-fencing and
resolution procedures, including living wills, with the objective of enhancing market
discipline. Capital requirements, on the other hand, can be viewed as substitutes for market
discipline. Other factors include a provision of the Dodd-Frank Act requiring the Federal
Reserve to impose more stringent liquidity standards on the largest bank holding
companies. Liquidity requirements are being introduced under Basel III as well. The Dodd-
Frank Act also includes the use of regular stress tests with the goal to provide better
information for regulators and market participants, which in turn will have an impact on
bank behavior. While this will not directly address the potential for banks to become too
big to fail, such information and the resulting incentives could help affect behavior in a
way that makes it less likely that future failures will transpire. In addition, reforms of
supervisory organization and powers are part of the efforts to reduce the likelihood of bank
failures. Tables 14 and 15 show that there is little uniformity in the approaches that the 25
countries hosting the world’s 100 biggest banks are relying on to address the too big to fail
problem. Some supervise systemically important institutions differently from non-systemic
ones, and the countries rely on different factors to assess systemic risks. Some countries
have established a specialized department to deal with financial stability and systemic
supervision, while others have not. Not all countries have the same tools to oversee and/or
limit the activities of large/interconnected institutions. Tracking these differences will
provide valuable information about which approaches work best in preventing and
mitigating future crises. Unfortunately, it will take a future crisis to make a real assessment.

48
See, for example, Barth et al. (2015) and European Shadow Financial Regulatory Committee (2014).

41
6. Summary and Conclusion

That some banks are too big to fail is not new. Neither is the challenge for policymakers to
implement reforms that eliminate the need to bail out big banks. The regulatory regimes
for big banks in many countries are undergoing changes from those that prevailed before
the global financial crisis. Banks will now be required to hold more capital, have more
robust access to liquidity, undergo increased regulatory scrutiny, and face restrictions on
certain activities. Many of these changes are still evolving as some reforms are being
implemented and proposals for additional reforms are still being evaluated.

Some regulators and experts favor a very direct approach on too big to fail: simply break
up the big banks.49 Johnson and Kwak (2010, p. 208), for example, state “…do not allow
financial institutions to be too big to fail; break up the ones that are.” However, others
disagree. For example, Krugman (2010) states that “breaking up big financial institutions
wouldn’t prevent future crises, nor would it eliminate the need for bailouts when those
crises happen.” Farhi and Tirole (2012), moreover, argue that, in their model of optimal
regulation, breaking down banks into smaller banks would achieve no benefit.

The fact that these and other distinguished individuals do not agree on whether the too big
to fail problem can be solved by breaking up the big banks suggests that one should be
cautious about adopting such an approach without evidence regarding its benefits and costs.
In this regard, Scott (2010, p. 20) states that “…the surprising fact is that we do not know
whether larger institutions pose greater systemic risk and, if so, whether that increase is
significant.”50 Moreover, breaking up big banks seems to be based on the assumption that
such banks per se caused the financial crises in the United States and other countries, and
therefore will cause future crises, despite other reforms being implemented. Yet, in the case
of the United States, Gorton and Metrick (2012, p.150) point out that (1) “… the
acceleration of system-wide leverage just before the crisis … [is] the strongest predictor of
crises in the past two centuries, (2) … the recent crisis was preceded by rapid increases in

49
This is not a replacement for other reforms discussed earlier but in addition to these reforms.
50
Also, see the discussion by Calomiris (2009) and Wallison (2012).

42
housing prices, and (3 the crisis was exacerbated by panics in the banking system, where
various types of short-term debt suddenly became subject to runs.”

We share the concern of individuals who believe that these reform efforts may fall
short of solving the too big to fail problem. What criterion should be used to evaluate
whether a bank is too big to fail? Contagion within a financial system would depend
on a bank’s size relative to the financial system with the implication that large
countries like the U.S. would be able to accept much larger banks than small
countries with more concentrated banking systems. There is also a question of
drawing the borderlines of a financial system. Should a large bank in a European
country be considered a part of the country’s banking system or a part of the EU
banking system? Another issue arises for cross-border banks. Size can be measured
by total assets or by assets within a specific country. Clearly the contagion effects
within a financial system are relatively large for a bank with large cross-border
operations like Citigroup or the two large Swiss banks.

The contagion effect within a banking system is also different from the vulnerability
of the real economy to a large bank’s failure. The U.S. economy relies to a large
extent on securities markets to finance small and medium sized enterprises, while
most non-Anglo-Saxon countries rely primarily on bank financing. Thus, a banking
crisis in the U.S. may affect economic activity to a lesser degree than a banking
crisis in Continental Europe.

We have discussed and provided data to assess the complexity of large banks. A
more complex bank might be considered too big to fail at a smaller size than a larger
bank specializing on retail services only within one country. Complexity of a bank
is usually linked to a greater share of market-based activities, large and many cross-
border activities, interconnectedness and, not least, non-overlapping functional and
legal organizations. These factors contribute to costs and time in resolution of a
distressed bank and, therefore, to greater pressure on authorities to bail out the bank.

43
A fundamental problem is that we do not understand well why the world’s financial
systems are dominated by relatively few large and organizationally complex banks.
It is uncertain whether complexity to a large extent is driven by economies of scope,
by the implicit subsidy associated with high bailout probability or by tax incentives
and the design of regulation, including capital requirements. The most effective
approach to complexity cannot be assessed without greater knowledge of these
factors.

Removal of the implicit subsidy associated with size and complexity would provide
information and incentives for banks to organize themselves over time based on
economies (and diseconomies) of scale and scope. Current regulatory approaches to
complexity include requirements for separation or ring-fencing of particular
activities, implementation of resolution procedures that would enable banks to fail
with a minimum of bailouts of creditors and a minimum of contagion, and additional
capital requirements for systemically important banks.

In the United States the Dodd Frank Act with its Volcker rule, Living wills and Orderly
Liquidation procedures are still in the process of implementation. The European Parliament
recently approved a Volcker-like rule prohibiting proprietary trading of systemically
important banks with trading activities above €70 billion, or 10 percent of their total assets,
or proof that the activities do not amount to systemic risk. About 30 large and important
European banks would satisfy these criteria for restrictions on trading. It is perhaps ironic
that separation requirements in the U.S. as well as the EU focus on trading activities given
the evidence that the size of trading activities have so far not contributed to banks’ default
risk.

In the UK the ring-fencing requirements along the lines of the Vickers Report were revised
in October 2015. The new proposal alleviated fears of banks that ring-fencing of retail
banks would be strict and mandatory. Retail banks will be able to transfer capital in the
form of dividends, lend and cross-sell products within the group as long as the retail bank
satisfies a minimum capital requirement.

44
There is little doubt that the various measures to separate activities within banking groups,
including Living Wills, will induce large banks to adjust their organization. The extent to
which banking structures will be simplified sufficiently to enable resolution of failing
banks without bailouts depends very much on regulators’ and supervisors’ behavior. The
credibility that the new procedures will be applied in a crisis of one or more large banks
has not been established, and most likely will not be until there is another crisis.

Big banks do possess considerable power that may be used to influence the regulatory
authorities to pursue policies that increase the risk of a systemic crisis. The regulatory
authorities, moreover, may also pursue such policies based upon a bias in favor of banks.
In the absence of evidence that the benefits exceed the cost of breaking up big banks
policymakers may simply have to monitor the incremental reforms they have already begun
to implement and make adjustments as the results become available. Barth, Caprio and
Levine (2012) point out that given the poor past performance of the regulatory authorities,
it may also be prudent to establish procedures to hold them more accountable for achieving
stability in the future.

45
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52
 Table 1: The 11 biggest banks deemed too big to fail in 1984 and their holding companies (assets as of
year-end 1983)

Bank holding company BHC’s % of Cumulative Bank Bank’s % of total Bank’s

assets ($ total assets as % assets assets as %
millions) BHC of total ($ millions) bank of BHC's
assets BHC assets assets
assets
Citicorp $125,974 6.2 - Citibank $104,392 5.2 82.9
Bank of America Corp. $115,442 5.7 12.0 Bank of America $104,085 5.2 90.2
Chase Manhattan Corp. $75,350 3.7 15.7 Chase Manhattan Bank $72,956 3.6 96.8
J.P. Morgan & Co. $56,186 2.8 18.5 Morgan Guaranty Trust $54,368 2.7 96.8
Manufacturers Hanover Corp. $60,918 3.0 21.5 Manufacturers Hanover $54,321 2.7 89.2
Trust
Chemical New York Corp. $47,789 2.4 23.8 Chemical Bank $45,956 2.3 96.2
Continental Illinois Corp. $41,238 2.0 25.9 Continental Illinois $39,811 2.0 96.5
National Bank & Trust
Bankers Trust New York Corp. $36,952 1.8 27.7 Bankers Trust $36,949 1.8 100.0
Security Pacific Corp. $38,613 1.9 29.6 Security Pacific $34,329 1.7 88.9
National
First Chicago Corp. $34,871 1.7 31.4 Bank
First National Bank of $33,505 1.7 96.1
Chicago
Wells Fargo & Co. $26,522 1.3 32.7 Wells Fargo Bank $23,390 1.2 88.2

Total bank $2,019,800 32.7 32.7 30.1

holding
company assets

Sources: The Banker and FDIC.

53
 Table 2. The world’s 100 biggest banks ranked both by reported total assets and total assets when
derivatives are on a gross, not net (U.S. GAAP), basis (IFRS), Q2 2015 (1)
(Global-systemically important banks, or identified by the Financial Stability Board as of
November 2014 are highlighted) (2)

Total
Total assets
derivatives
Total reported when
Total assets when based
Accounting derivatives on- derivatives
Bank name Country ($billions) on gross
standard (3) balance sheet based only on
rather than net
($billions) gross basis
basis
($billions)
($billions)
Industrial & Commercial Bank CHINA IFRS 3,667 11 N/A 3,667
1
of China (The) - ICBC
China Construction Bank CHINA IFRS 2,980 4 N/A 2,980
2 Corporation Joint Stock
Company
Agricultural Bank of China CHINA IFRS 2,856 1 N/A 2,856
3
Limited
4 Bank of China Limited CHINA IFRS 2,666 9 N/A 2,666
HSBC Holdings Plc UNITED IFRS 2,572 297 N/A 2,572
5
KINGDOM
JPMorgan Chase & Co UNITED US GAAP 2,450 67 3,341
6 STATES OF
AMERICA 958
7 BNP Paribas SA FRANCE IFRS 2,393 426 N/A 2,393
Mitsubishi UFJ Financial JAPAN JP GAAP 2,248 108 N/A
Group Inc-Kabushiki Kaisha 2,248
8
Mitsubishi UFJ Financial
Group
Bank of America Corporation UNITED US GAAP 2,149 51 2,820
9 STATES OF
AMERICA 722
10 Deutsche Bank AG GERMANY IFRS 1,896 604 N/A 1,896
Barclays Plc UNITED IFRS 1,881 536 N/A 1,881
11
KINGDOM
Citigroup Inc UNITED US GAAP 1,829 61 2,420
12 STATES OF
AMERICA 651
Wells Fargo & Company UNITED US GAAP 1,721 18 1,786
13 STATES OF
AMERICA 84
14 Crédit Agricole S.A. FRANCE IFRS 1,714 222 N/A 1,714
Sumitomo Mitsui Financial JAPAN IFRS 1,537 51 N/A 1,537
15
Group, Inc
Mizuho Financial Group JAPAN JP GAAP 1,523 25 N/A
16
1,523
17 Société Générale SA FRANCE IFRS 1,521 242 N/A 1,521
Royal Bank of Scotland Group UNITED IFRS 1,516 443 N/A 1,516
18
Plc (The) KINGDOM
19 Banco Santander SA SPAIN IFRS 1,499 90 N/A 1,499
Lloyds Banking Group Plc UNITED IFRS 1,293 44 N/A 1,293
20
KINGDOM
Bank of Communications Co. CHINA IFRS 1,165 2 N/A 1,165
21
Ltd
UBS Group AG SWITZERLAN IFRS 1,021 187 N/A 1,021
22
D
23 UniCredit SpA ITALY IFRS 979 75 N/A 979
ING Groep NV NETHERLAND IFRS 968 4 N/A 968
24
S
Credit Suisse Group AG SWITZERLAN US GAAP 945 34 N/A 945
25
D
Goldman Sachs Group, Inc UNITED US GAAP 860 55 1,633
26 STATES OF
AMERICA 827

54
 Total
Total assets
derivatives
Total reported when
Accounting Total assets when based
derivatives on- derivatives
Bank name Country ($billions) on gross
standard (3) balance sheet based only on
rather than net
($billions) gross basis
basis
($billions)
($billions)
27 China Merchants Bank Co Ltd CHINA IFRS 854 1 N/A 854
28 Royal Bank of Canada CANADA IFRS 852 88 N/A 852
30 Toronto Dominion Bank CANADA IFRS 851 54 N/A 851
29 Industrial Bank Co Ltd CHINA CN GAAP 838 1 N/A 838
Morgan Stanley UNITED US GAAP 826 33 86 879
31 STATES OF
AMERICA
32 Nordea Bank AB (publ) SWEDEN IFRS 764 97 N/A 764
Shanghai Pudong Development CHINA IFRS 753 1 N/A 753
33
Bank
Banco Bilbao Vizcaya SPAIN IFRS 749 51 N/A 749
34
Argentaria SA
35 Intesa Sanpaolo ITALY IFRS 748 45 N/A 748
China CITIC Bank Corporation CHINA IFRS 746 1 N/A 746
36
Limited
National Australia Bank AUSTRALIA IFRS 732 66 N/A 732
37
Limited
China Minsheng Banking CHINA IFRS 704 1 N/A 704
38
Corporation
Commonwealth Bank of AUSTRALIA IFRS 698 44 N/A 698
39
Australia
Standard Chartered Plc UNITED IFRS 695 61 N/A 695
40
KINGDOM
Bank of Nova Scotia (The) - CANADA IFRS 691 31 N/A 691
41
SCOTIABANK
Australia and New Zealand AUSTRALIA IFRS 657 56 N/A 657
42
Banking Group Limited
43 Commerzbank AG GERMANY IFRS 628 90 N/A 628
44 Westpac Banking Corporation AUSTRALIA IFRS 608 35 N/A 608
45 Natixis SA FRANCE IFRS 573 86 N/A 573
Bank of Montreal-Banque de CANADA IFRS 523 33 N/A 523
46
Montreal
47 Danske Bank A/S DENMARK IFRS 518 50 N/A 518
48 China Everbright Bank Co Ltd CHINA IFRS 491 0 N/A 491
Banco do Brasil S.A. BRAZIL IFRS 481 1 N/A
49
481
Sberbank of Russia OAO RUSSIAN IFRS 426 10 N/A 426
50
FEDERATION
State Bank of India INDIA IN GAAP 425 n.a. N/A
51
425
US Bancorp UNITED US GAAP 419 1.4 2.3 420
52 STATES OF
AMERICA
Bank of New York Mellon UNITED US GAAP 395 4.9 16.6 407
53 Corporation STATES OF
AMERICA
54 Caixabank, S.A. SPAIN IFRS 385 14 N/A 385
Sumitomo Mitsui Trust JAPAN JP GAAP 383 5 N/A
55
Holdings, Inc 383
Resona Holdings, Inc JAPAN JP GAAP 376 3 N/A
56
376
57 Itau Unibanco Holdings BRAZIL IFRS 366 6 N/A 366
Canadian Imperial Bank of CANADA IFRS 362 22 N/A 362
58
Commerce CIBC
Nomura Holdings Inc JAPAN US GAAP 359 12 N/A
59
359
60 Svenska Handelsbanken SWEDEN IFRS 356 11 N/A 356
PNC Financial Services Group UNITED US GAAP 354 2.6 4.9 356
61 Inc STATES OF
AMERICA

55
 Total
Total assets
derivatives
Total reported when
Accounting Total assets when based
derivatives on- derivatives
Bank name Country ($billions) on gross
standard (3) balance sheet based only on
rather than net
($billions) gross basis
basis
($billions)
($billions)
Banco Bradesco SA BRAZIL IFRS 350 2 N/A
62
350
63 DnB ASA NORWAY IFRS 336 23 N/A 336
Skandinaviska Enskilda SWEDEN IFRS 335 27 N/A 335
64
Banken AB
65 DBS Group Holdings Ltd SINGAPORE IFRS 327 12 N/A 327
Shinhan Financial Group REPUBLIC OF IFRS 322 1 N/A 322
66
KOREA
67 Hua Xia Bank co., Limited CHINA CN GAAP 314 0 N/A 314
Capital One Financial UNITED US GAAP 311 0.9 1.4 311
68 Corporation STATES OF
AMERICA
BOC Hong Kong (Holdings) HONG KONG IFRS 305 4 N/A 305
69
Ltd
Hana Financial Group REPUBLIC OF IFRS 298 4 N/A 298
70
KOREA
Oversea-Chinese Banking SINGAPORE IFRS 296 4 N/A 296
71
Corporation Limited OCBC
State Street Corporation UNITED US GAAP 295 5.2 10.5 300
72 STATES OF
AMERICA
Shinkin Central Bank JAPAN JP GAAP 290 0 N/A
73
290
74 Ping An Bank Co Ltd CHINA IFRS 289 0 N/A 289
KBC Groep NV/ KBC Groupe BELGIUM IFRS 287 10 N/A 287
75
SA-KBC Group
Crédit Industriel et Commercial FRANCE IFRS 283 7 N/A 283
76
SA - CIC
77 Swedbank AB SWEDEN IFRS 279 12 N/A 279
78 Dexia SA BELGIUM IFRS 270 9 N/A 270
79 Bank of Beijing Co Ltd CHINA CN GAAP 266 0 N/A 266
Woori Bank REPUBLIC OF IFRS 257 2 N/A 257
80
KOREA
81 Bankia, SA SPAIN IFRS 246 22 N/A 246
Cathay Financial Holdings Co TAIWAN IFRS 237 1 N/A 237
82
Ltd
United Overseas Bank Limited SINGAPORE IFRS 230 5 N/A 230
83
UOB
84 Banco de Sabadell SA SPAIN IFRS 228 2 N/A 228
85 Erste Group Bank AG AUSTRIA IFRS 221 9 N/A 221
VTB Bank (public joint-stock RUSSIAN IFRS 211 4 N/A 211
86
company)-JSC VTB Bank FEDERATION
Industrial Bank of Korea REPUBLIC OF IFRS 210 2 N/A 210
87
KOREA
Swiss Life Holding SWITZERLAN IFRS 201 3 N/A 201
88
D
Banca Monte dei Paschi di ITALY IFRS 199 8 N/A 199
89 Siena SpA-Gruppo Monte dei
Paschi di Siena
90 Daiwa Securities Group Inc JAPAN JP GAAP 192 23 N/A 192
BB&T Corporation UNITED US GAAP 191 1.3 1.3 191
91 STATES OF
AMERICA
SunTrust Banks, Inc. UNITED US GAAP 189 1.2 5.2 193
92 STATES OF
AMERICA
Fubon Financial Holding Co TAIWAN IFRS 186 1 N/A 186
93
Ltd
94 Banco Popular Espanol SA SPAIN IFRS 182 2 N/A 182
95 Exor Spa ITALY IFRS 175 1 N/A 175

56
 Total
Total assets
derivatives
Total reported when
Accounting Total assets when based
derivatives on- derivatives
Bank name Country ($billions) on gross
standard (3) balance sheet based only on
rather than net
($billions) gross basis
basis
($billions)
($billions)
Malayan Banking Berhad - MALAYSIA IFRS 175 2 N/A 175
96
Maybank
97 Deutsche Postbank AG GERMANY IFRS 172 1 N/A 172
98 Hang Seng Bank Ltd. HONG KONG IFRS 172 1 N/A 172
National Bank of Canada- CANADA IFRS 171 9 N/A 171
99
Banque Nationale du Canada
Charles Schwab Corporation UNITED US GAAP 164 n.a. n.a n.a
100 STATES OF
AMERICA
Note: n.a. = not available and N/A = not applicable. IFRS denotes International Financial Reporting Standards.
(1) Data from previous quarter are used if the most recent quarterly data are not available.
(2) Groupe BPCE is identified as of a G-SIB, but is not included on our list of the world’s 100 biggest banks because
it is not publicly traded.
(3) Switzerland allows companies the choice of reporting derivatives on a net or gross basis.
(4) Unlike most U.S. banks, Capital One presents derivatives on a gross basis, which does not reflect the impact of
legally enforceable master counterparty netting agreements, or collateral received/posted.
Sources: BankScope, annual reports, and Financial Stability Board (2015).

Figure 1. Differences in total assets of big U.S. banks due to differences in the accounting treatment of
derivatives, Q2 2015

US$ billions
4,000

3,500

Reported total assets (U.S. GAAP)

3,000
891
Additional derivatives included in total
2,500
assets (IFRS)
671

590
2,000
65

1,500

2,450 773
2,149
1,000 54
1,829 1,721

500 1 12 2
860 826 0
5
0 4
419 395 354 311 295 191 189
0
JPMorgan Bank of Citigroup Inc Wells Fargo & Goldman Morgan US Bancorp Bank of New PNC Financial Capital One State Street BB&T SunTrust
Chase & Co America Company Sachs Group, Stanley York Mellon Services Financial Corporation Corporation Banks, Inc.
Corporation Inc Corporation Group Inc Corporation

Sources: BankScope and annual reports.

57
Table 3. Importance of the world’s 100 biggest banks in 25 home countries, Q2 2015
Number and assets of the Importance of the biggest Importance of
Number and assets of publicly
world's 100 biggest banks by banks and banking assets by total assets of
traded banks by country
country country publicly
Combined traded
assets of banks to
Total Total assets of Combined Total assets equity market
Number of banks in the
number of publicly assets of top of publicly capitalization
Country banks in top 100 (% of
publicly traded banks 100 traded banks plus bonds
top 100 total assets of
traded banks ($billions) ($billions) (% GDP) outstanding
publicly
traded banks) (2014)
Australia 9 3,005 4 2,694 90 208 90
Austria 9 454 1 221 49 104 61
Belgium 4 589 2 557 95 110 57
Brazil 19 1,511 3 1,197 79 64 43
Canada 15 3,525 6 3,449 98 197 85
China 21 19,211 14 18,588 97 186 257
Denmark 25 665 1 518 78 194 58
France 21 6,729 5 6,483 96 237 106
Germany 10 2,790 3 2,696 97 72 48
Hong Kong 8 651 2 477 73 224 48
India 40 1,756 1 425 24 86 92
Italy 26 2,742 4 2,101 77 128 63
Japan 97 10,030 8 6,909 69 218 55
Malaysia 13 617 1 175 28 182 72
Netherlands 5 1,094 1 968 88 124 37
Norway 22 454 1 336 74 91 57
Korea, Rep 8 1,117 4 1,087 97 79 43
Russian 60 969 2 638 66 52 74
Singapore 7 867 3 853 98 281 122
Spain 7 3,353 6 3,288 98 238 98
Sweden 5 1,745 4 1,735 99 306 131
Switzerland 17 2,392 3 2,168 91 340 183
Taiwan 27 1,533 2 423 28 289 479
United
15 8,073 5 7,957 99 274 92
Kingdom
United States 736 18,179 14 12,151 67 105 35
Total 1,226 94,052 100 78,095

World total 1,862 102,285

Note: Publicly traded banks are commercial banks, savings banks, cooperative banks, or bank holding companies.
Sources: BankScope, World Bank, and International Monetary Fund.

58
Figure 2. Number and assets of the world’s 100 biggest banks by country, Q2 2015

Total number = 100 banks

United States, 14

The rest of China, 14

Countries, 52

Japan, 8

Canada, 6
Spain, 6

Total Assets = US$78 trillion

The rest of
countries, China,
US$26 US$19
trillion trillion

Japan,
US$7
United States,
trillion
US$ 12 trillion
France,
US$6
trillion United Kingdom,
US$8 trillion
Sources: BankScope.

59
Figure 3. Cumulative assets of the world’s biggest banks, Q2 2015

%
120

100

80

60

40

20

-
20 biggest 40 biggest 60 biggest 80 biggest 100 biggest
banks banks banks banks banks

Assets of the world's biggest banks as percent of world total bank assets
Assets of the world's biggest banks as percent of world GDP

Note: The 100 biggest publicly traded banks in the world ranked by total assets (US$ 78 trillion). World GDP is for
2014 (US$ 77 trillion). World total bank assets are based on all publicly traded banks worldwide, which include
commercial banks, savings banks, cooperative banks, and bank holding companies (US$ 102 trillion).
Sources: Statista and Bankscope.

Figure 4: The world’s 50 biggest banks have gotten even bigger

Combined assets of the world's 50 biggest banks

(% of world GDP)
90% 83%
80%
70% 66%
60%
50% 45%
40%
30% 24%
20% 15%
10%
0%
1970 1980 1990 2000 2015Q2
Sources: The Banker, Bloomberg, International Monetary Fund, World Bank, and Bankscope.

60
Figure 5: The U.S. biggest banks have gotten even bigger

Combined assets of the 50 biggest U.S. bank holding

companies (% of U.S. GDP)
100%
87%
90%
80%
70%
60%
49%
50%
40% 33% 33%
30% 25%
20%
10%
0%
1970 1980 1990 2000 2015Q2

Sources: The Banker, the Federal Reserve Bank of Chicago, U.S. Bureau of Economic Analysis, and Bankscope.

Figure 6. Combined assets of the world’s biggest banks, Q2 2015

World total bank assets: U$S102

trillion

100 biggest banks 76%

75 biggest banks 71%

50 biggest banks 63%

25 biggest banks 46%

5 biggest banks 14%

World GDP: US$77 trillion

100 biggest banks 101%

75 biggest banks 94%

50 biggest banks 83%

25 biggest banks 61%

5 biggest banks 19%

Note: The 100 biggest publicly traded banks in the world ranked by total assets. World GDP is a 2012 IMF estimate.
World total bank assets are based on all publicly traded banks worldwide, which include commercial banks, savings
banks, cooperative banks, and bank holding companies.
Sources: Statista and Bankscope.

61
Figure 7. The world’s 100 biggest banks: Ranked by individual bank assets to total bank assets and to
GDP, Q2 2015

Total assets
(% country total banking assets)

SunTrust Banks, Inc.

Bank of Beijing Co Ltd
State Street Corporation
Capital One Financial Corporation
PNC Financial Services Group Inc
US Bancorp
Shinkin Central Bank
China Minsheng Banking Corporation
Sumitomo Mitsui Trust Holdings
Shanghai Pudong Development Bank
Industrial Bank Co Ltd
Morgan Stanley
National Bank of Canada
Bank of Communications Co.
Exor Spa
Banca Monte dei Paschi di Siena SpA
Swiss Life Holding
Standard Chartered
Citigroup Inc
Caixabank, S.A.
Fubon Financial Holding Co Ltd
Bank of China
Agricultural Bank of China
Sumitomo Mitsui Financial Group
China Construction Bank Corporation
Lloyds Banking Group
Royal Bank of Scotland Group
Skandinaviska Enskilda Banken AB
Westpac Banking Corporation
VTB Bank -JSC VTB Bank
Banco Bilbao Vizcaya Argentaria SA
Commerzbank AG
Woori Bank
Commonwealth Bank of Australia
Toronto Dominion Bank
Itau Unibanco Holdings
National Australia Bank Limited
Hang Seng Bank Ltd.
Hana Financial Group
Malayan Banking Berhad - Maybank
HSBC Holdings
Oversea-Chinese Banking Corporation
UniCredit SpA
Credit Suisse Group AG
Nordea Bank AB
Banco Santander SA
BOC Hong Kong (Holdings) Ltd
KBC Groep NV/ KBC Groupe SA-KBC…
DnB ASA
ING Groep NV
0 25 50 75 100
Sources: BankScope and International Monetary Fund.

62
Figure 8. The world’s 100 biggest banks: Ranked by individual bank equity to GDP, Q2 2015

Total equity capital (% country GDP)

Charles Schwab Corporation
SunTrust Banks, Inc.
Hua Xia Bank co., Limited
Daiwa Securities Group Inc
PNC Financial Services Group Inc
Resona Holdings, Inc
Shanghai Pudong Development Bank
Banca Monte dei Paschi di Siena SpA-Gruppo Monte…
Crédit Industriel et Commercial SA - CIC
China Merchants Bank Co Ltd
Dexia SA
Banco de Sabadell SA
VTB Bank (public joint-stock company)-JSC VTB Bank
Wells Fargo & Company
Citigroup Inc
Banco do Brasil S.A.
Bank of America Corporation
Standard Chartered Plc
Swiss Life Holding
Bank of China Limited
Sberbank of Russia OAO
Société Générale SA
Swedbank AB
Lloyds Banking Group Plc
Cathay Financial Holdings Co Ltd
Toronto Dominion Bank
Barclays Plc
Banco Bilbao Vizcaya Argentaria SA
Nordea Bank AB (publ)
Credit Suisse Group AG
United Overseas Bank Limited UOB
BOC Hong Kong (Holdings) Ltd
Westpac Banking Corporation
DBS Group Holdings Ltd
- 2.00 4.00 6.00 8.00 10.00 12.00

Sources: BankScope and International Monetary Fund.

63
Figure 9. World’s 100 biggest banks: Total bank equity capital-to-GDP ratios by country, 2015

Total equity capital (% country GDP)

40%
35%
30%
25%
20%
15%
10%
5%
0%

France

Italy
Japan
Singapore

Canada

Denmark
Switzerland

Sweden
United Kingdom

Republich of Korea

Belgium
China

Norway

Germany
Spain

United States

Netherlands

Brazil

Australia
Austria

Hong Kong

Taiwan
Malaysia

Russian Federation
India
Note: Bank equity capital is for the second quarter of 2015 and individual country GDPs are 2014.
Sources: BankScope and International Monetary Fund.

Table 4. Total assets and equity of the U.S. biggest bank holding companies and their FDIC-insured
subsidiaries, Q2 2015
Holding Company FDIC-insured subsidiaries % holding company

Combined total Combined total

Total assets Total equity No. of insured Total equity
assets bank equity Total assets
($billions) capital ($billion) subsidiaries capital
($billions) capital ($billion)
JPMorgan Chase & Co 2,450 241 4 2,134 219 87.1 91.0
Bank of America
2,149 252 2 1,630 204 75.8 81.0
Corporation
Citigroup Inc 1,829 221 3 442 149 24.2 67.5
Wells Fargo & Company 1,721 191 5 1,579 151 91.8 79.3
Goldman Sachs Group, Inc 860 88 1 123 22 14.3 25.3
Morgan Stanley 826 76 2 158 16 19.1 20.8
US Bancorp 419 45 1 414 42 98.8 92.6
Bank of New York Mellon
395 39 4 344 26 86.9 66.9
Corporation
PNC Financial Services
354 46 1 344 39 97.1 85.4
Group Inc
Capital One Financial
311 47 2 349 45 112.3 96.1
Corporation
State Street Corporation 295 22 1 289 21 98.3 93.5
SunTrust Banks, Inc. 189 23 1 184 23 97.5 99.8
BB&T Corporation 191 25 1 187 23 97.7 93.0
Charles Schwab
164 12 - - - -
Corporation
American Express
157 22 2 80 13 50.8 59.7
Company
Note: Financial data for bank holding companies represent the summation of FFIEC Call Reports or OTS Thrift Financial
Reports (TFR) filed by all FDIC-insured bank and thrift subsidiaries held by a bank holding company, and do not reflect
nondeposit subsidiaries or parent companies. Data values have not been adjusted for intra-company transactions, which
mean that some percentages for some holding companies can exceed 100 percent.
Sources: Bankscope and FDIC.

64
Table 5. Business Segments of J.P. Morgan, Q2 2015.

Consumer & Corporate &

( US$ millions, except Community Investment Commercial Asset
ratios) Banking Bank Banking Management Total
Noninterest revenue 4,089 6,233 609 2,544 13,128
Net interest income 6,926 2,490 1,130 631 10,684
Total net revenue 11,015 8,723 1,739 3,175 23,812
Provision for credit
losses 702 50 182 — 935
Noninterest expense 6,210 5,137 703 2,406 14,500
Income/(loss) before
income tax expense/
(benefit) 4,103 3,536 854 769 8,377
Income tax expense/
(benefit) 1,570 1,195 329 318 2,087
Net income 2,533 2,341 525 451 6,290
Average common
equity 51,000 62,000 14,000 9,000 213,738
Total assets 472,181 819,745 201,377 134,059 2,449,599
Return on common
equity 19% 14% 14% 19% 11%
Overhead ratio 56 59 40 76 61
Source: J.P. Morgan Quarterly Report.

65
 Table 6. The world’s 100 biggest banks: Subsidiaries, Q2 2015

Nu
Total No. No. No. mbe
Assets dome dome foreig r of
bil USD No. stic stic No. n host
2015 subsi subsi subsi foreign subsi cou
Quarter diarie diarie diarie subsidiar diarie ntrie
Bank Country 2 s s s (%) ies s (%) s
Industrial & Commercial Bank of China
CHINA 83 8 9.6 90.4 26
(The) - ICBC 3,667 75
China Construction Bank Corporation Joint
CHINA 42 28 66.7 33.3 10
Stock Company 2,980 14
Agricultural Bank of China Limited CHINA 25 16 64.0 36.0 7
2,856 9
Bank of China Limited CHINA 47 16 34.0 66.0 19
2,666 31
UNITED
HSBC Holdings Plc 2,357 802 34.0 66.0 63
KINGDOM 2,572 1,555
UNITED
JPMorgan Chase & Co STATES OF 5,272 2269 43.0 57.0 72
2,450 3,003
AMERICA
BNP Paribas SA FRANCE 2,742 403 14.7 85.3 81
2,393 2,339
Mitsubishi UFJ Financial Group Inc-
Kabushiki Kaisha Mitsubishi UFJ Financial JAPAN 2,620 1778 67.9 32.1 31
2,248 842
Group
UNITED
Bank of America Corporation STATES OF 2,869 2347 81.8 18.2 48
2,149 522
AMERICA
Deutsche Bank AG GERMANY 5,402 618 11.4 88.6 76
1,896 4,784
UNITED
Barclays Plc 2,824 1266 44.8 55.2 64
KINGDOM 1,881 1,558
UNITED
Citigroup Inc STATES OF 786 537 68.3 31.7 34
1,829 249
AMERICA
UNITED
Wells Fargo & Company STATES OF 4,225 3632 86.0 14.0 51
1,721 593
AMERICA
Crédit Agricole S.A. FRANCE 844 614 72.7 27.3 45
1,714 230
Sumitomo Mitsui Financial Group, Inc JAPAN 122 83 68.0 32.0 17
1,537 39
Mizuho Financial Group JAPAN 1,251 504 40.3 59.7 27
1,523 747
Société Générale SA FRANCE 1,157 199 17.2 82.8 65
1,521 958
UNITED
Royal Bank of Scotland Group Plc (The) 256 167 65.2 34.8 25
KINGDOM 1,516 89
Banco Santander SA SPAIN 1,246 365 29.3 70.7 41
1,499 881
UNITED
Lloyds Banking Group Plc 86 74 86.0 14.0 7
KINGDOM 1,293 12
Bank of Communications Co. Ltd CHINA 132 127 96.2 3.8 5
1,165 5
UBS Group AG SWITZERLAND 4,023 183 4.5 95.5 59
1,021 3,840
UniCredit SpA ITALY 1169 178 15.2 84.8 62
979 991
ING Groep NV NETHERLANDS 284 77 27.1 72.9 27
968 207
Credit Suisse Group AG SWITZERLAND 3673 222 6.0 94.0 62
945 3,451
UNITED
Goldman Sachs Group, Inc STATES OF 3936 2405 61.1 38.9 62
860 1,531
AMERICA

66
 China Merchants Bank Co Ltd CHINA 25 12 48.0 52.0 4
854 13
Royal Bank of Canada CANADA 1,959 349 17.8 82.2 48
852 1,610
Toronto Dominion Bank CANADA 2,251 350 15.5 84.5 43
851 1,901
Industrial Bank Co Ltd CHINA 38 38 100.0 0.0 1
838 -
UNITED
Morgan Stanley STATES OF 4,180 3036 72.6 27.4 67
826 1,144
AMERICA
Nordea Bank AB (publ) SWEDEN 1,152 170 14.8 85.2 57
764 982
Shanghai Pudong Development Bank CHINA 36 36 100.0 0.0 1
753 -
Banco Bilbao Vizcaya Argentaria SA SPAIN 564 233 41.3 58.7 35
749 331
Intesa Sanpaolo ITALY 542 293 54.1 45.9 48
748 249
China CITIC Bank Corporation Limited CHINA 8 4 50.0 50.0 2
746 4
National Australia Bank Limited AUSTRALIA 245 206 84.1 15.9 8
732 39
China Minsheng Banking Corporation CHINA 8 8 100.0 0.0 1
704 -
Commonwealth Bank of Australia AUSTRALIA 1,036 401 38.7 61.3 50
698 635
UNITED
Standard Chartered Plc 405 70 17.3 82.7 53
KINGDOM 695 335
Bank of Nova Scotia (The) - SCOTIABANK CANADA 755 314 41.6 58.4 53
691 441
Australia and New Zealand Banking Group
AUSTRALIA 155 82 52.9 47.1 24
Limited 657 73
Commerzbank AG GERMANY 1,473 734 49.8 50.2 41
628 739
Westpac Banking Corporation AUSTRALIA 323 247 76.5 23.5 11
608 76
Natixis SA FRANCE 441 212 48.1 51.9 37
573 229
Bank of Montreal-Banque de Montreal CANADA 1,741 318 18.3 81.7 64
523 1,423
Danske Bank A/S DENMARK 638 99 15.5 84.5 62
518 539
China Everbright Bank Co Ltd CHINA 7 6 85.7 14.3 2
491 1
Banco do Brasil S.A. BRAZIL 65 48 73.8 26.2 9
481 17
RUSSIAN
Sberbank of Russia OAO 138 119 86.2 13.8 13
FEDERATION 426 19
State Bank of India INDIA 103 88 85.4 14.6 12
425 15
UNITED
US Bancorp STATES OF 455 412 90.5 9.5 18
419 43
AMERICA
UNITED
Bank of New York Mellon Corporation STATES OF 6,173 3191 51.7 48.3 61
395 2,982
AMERICA
Caixabank, S.A. SPAIN 240 221 92.1 7.9 13
385 19
Sumitomo Mitsui Trust Holdings, Inc JAPAN 2,904 2028 69.8 30.2 26
383 876
Resona Holdings, Inc JAPAN 69 26 37.7 62.3 3
376 43
Itau Unibanco Holdings BRAZIL 136 102 75.0 25.0 16
366 34
Canadian Imperial Bank of Commerce CIBC CANADA 591 293 49.6 50.4 23
362 298

67
 Nomura Holdings Inc JAPAN 2,449 2016 82.3 17.7 32
359 433
Svenska Handelsbanken SWEDEN 806 287 35.6 64.4 49
356 519
UNITED
PNC Financial Services Group Inc STATES OF 658 588 89.4 10.6 24
354 70
AMERICA
Banco Bradesco SA BRAZIL 105 92 87.6 12.4 10
350 13
DnB ASA NORWAY 421 126 29.9 70.1 37
336 295
Skandinaviska Enskilda Banken AB SWEDEN 883 257 29.1 70.9 53
335 626
DBS Group Holdings Ltd SINGAPORE 20 6 30.0 70.0 10
327 14
REPUBLIC OF
Shinhan Financial Group 19 17 89.5 10.5 3
KOREA 322 2
Hua Xia Bank co., Limited CHINA 7 6 85.7 14.3 2
314 1
UNITED
Capital One Financial Corporation STATES OF 48 44 91.7 8.3 4
311 4
AMERICA
BOC Hong Kong (Holdings) Ltd HONG KONG 41 33 80.5 19.5 4
305 8
REPUBLIC OF
Hana Financial Group 17 16 94.1 5.9 2
KOREA 298 1
Oversea-Chinese Banking Corporation
SINGAPORE 226 42 18.6 81.4 16
Limited OCBC 296 184
UNITED
State Street Corporation STATES OF 5,730 2,882 50.3 49.7 62
295 2,848
AMERICA
Shinkin Central Bank JAPAN 98 96 98.0 2.0 3
290 2
Ping An Bank Co Ltd CHINA 21 21 100.0 0.0 1
289 -
KBC Groep NV/ KBC Groupe SA-KBC
BELGIUM 974 114 11.7 88.3 44
Group 287 860
Crédit Industriel et Commercial SA - CIC FRANCE 88 59 67.0 33.0 15
283 29
Swedbank AB SWEDEN 741 207 27.9 72.1 55
279 534
Dexia SA BELGIUM 25 3 12.0 88.0 13
270 22
Bank of Beijing Co Ltd CHINA 13 13 100.0 0.0 1
266 -
REPUBLIC OF
Woori Bank 64 52 81.3 18.8 10
KOREA 257 12
Bankia, SA SPAIN 287 263 91.6 8.4 15
246 24
Cathay Financial Holdings Co Ltd TAIWAN 172 151 87.8 12.2 6
237 21
United Overseas Bank Limited UOB SINGAPORE 119 38 31.9 68.1 15
230 81
Banco de Sabadell SA SPAIN 566 513 90.6 9.4 29
228 53
Erste Group Bank AG AUSTRIA 221 1,059 574 54.2 485 45.8 40
VTB Bank (public joint-stock company)-JSC RUSSIAN
239 205 85.8 14.2 20
VTB Bank FEDERATION 211 34
REPUBLIC OF
Industrial Bank of Korea 80 76 95.0 5.0 4
KOREA 210 4
Swiss Life Holding SWITZERLAND 169 34 20.1 79.9 14
201 135
Banca Monte dei Paschi di Siena SpA-
ITALY 175 162 92.6 7.4 7
Gruppo Monte dei Paschi di Siena 199 13
Daiwa Securities Group Inc JAPAN 2,467 2,180 88.4 11.6 26
192 287

68
 UNITED
BB&T Corporation STATES OF 397 373 94.0 6.0 10
191 24
AMERICA
UNITED
SunTrust Banks, Inc. STATES OF 168 156 92.9 7.1 10
189 12
AMERICA
Fubon Financial Holding Co Ltd TAIWAN 195 170 87.2 12.8 11
186 25
Banco Popular Espanol SA SPAIN 151 126 83.4 16.6 11
182 25
Exor Spa ITALY 635 39 6.1 93.9 52
175 596
Malayan Banking Berhad - Maybank MALAYSIA 144 65 45.1 54.9 18
175 79
Deutsche Postbank AG GERMANY 54 47 87.0 13.0 4
172 7
Hang Seng Bank Ltd. HONG KONG 32 24 75.0 25.0 4
172 8
National Bank of Canada-Banque Nationale
CANADA 61 27 44.3 55.7 8
du Canada 171 34
UNITED
Charles Schwab Corporation STATES OF 3,036 2,491 82.0 18.0 44
164 545
AMERICA
Note: The number of subsidiaries indicated for the U.S. banks obtained from BankScope differs significantly from the
number available from the Federal Reserve (see, for example, Avraham, Selvaggi and Vickery, 2012).
Sources: BankScope and Milken Institute.

69
Figure 10. Factors used to identify globally systemically important banks

Substitutability/
financial institution Interconnectedness
infrastructure (20%)

ratio
Wholesale funding
custody
Assets under
(20%)

Size

Complexity Cross-jurisdictional
(20%) activity
(20%)

Size
(20%)

Source: Basel Committee on Banking Supervision, “The G-SIB Assessment Methodology – Score Calculation,”
November 2014.

70
Table 7. The world’s 100 biggest banks: Composition of Assets and liabilities, Q2 2015
Assets (% total assets) Liabilities and equity (% total assets)

Short term borrowing

Long term borrowing

Total

Interbank lending

Derivatives and
assets

Other assets
Bank Country

Securities
Net loans

Deposits
(billions

trading

Equity
Other
)

1 Industrial & Commercial Bank of China (The) - CHINA 3,667 50.74 8.13 22.21 18.9 82.1 4.08 1.27 2.52 2.80 7.20
ICBC 1 3
2 China Construction Bank Corporation Joint CHINA 2,980 54.28 7.86 21.01 16.8 84.7 3.21 1.12 1.22 2.55 7.20
Stock Company 5 0
3 Agricultural Bank of China Limited CHINA 2,856 47.80 10.2 23.06 18.9 84.5 3.01 1.09 2.01 2.90 6.43
5 0 7
4 Bank of China Limited CHINA 2,666 53.38 7.75 20.62 18.2 82.7 3.95 1.67 0.30 3.55 7.77
4 5
5 HSBC Holdings Plc UNITED 2,572 37.09 4.65 46.89 11.3 55.2 5.93 2.28 20.9 7.82 7.83
KINGDOM 6 0 5
6 JPMorgan Chase & Co UNITED STATES 2,450 31.73 16.2 41.10 10.8 52.5 10.3 11.7 5.69 9.88 9.85
OF AMERICA 8 9 4 3 0
7 BNP Paribas SA FRANCE 2,393 31.98 1.90 53.78 12.3 36.0 16.0 7.60 22.0 13.7 4.49
5 7 1 8 5
8 Mitsubishi UFJ Financial Group Inc-Kabushiki JAPAN 2,248 40.72 0.19 38.05 21.0 57.6 17.5 7.97 10.4 0.24 6.20
Kaisha Mitsubishi UFJ Financial Group 4 3 5 1
9 Bank of America Corporation UNITED STATES 2,149 40.96 0.37 38.73 19.9 53.4 11.7 11.3 5.41 6.29 11.7
OF AMERICA 3 9 7 3 1
10 Deutsche Bank AG GERMANY 1,896 25.08 3.80 58.71 12.4 33.8 4.06 9.87 34.8 12.9 4.47
1 1 4 5
11 Barclays Plc UNITED 1,881 35.99 3.83 55.37 4.81 41.4 7.11 7.95 36.4 1.59 5.48
KINGDOM 3 4
12 Citigroup Inc UNITED STATES 1,829 33.79 7.15 40.65 18.4 49.6 11.0 11.5 7.45 8.15 12.0
OF AMERICA 2 5 9 8 7
13 Wells Fargo & Company UNITED STATES 1,721 52.46 10.9 28.16 8.46 68.9 4.82 10.4 1.78 2.97 11.0
OF AMERICA 2 0 4 8
14 Crédit Agricole S.A. FRANCE 1,714 21.28 22.4 50.02 6.30 38.9 5.51 12.4 16.9 22.3 3.75
1 6 7 5 6
15 Sumitomo Mitsui Financial Group, Inc JAPAN 1,537 49.91 0.71 23.39 25.9 68.1 12.0 5.17 4.72 3.89 6.00
9 8 5
16 Mizuho Financial Group JAPAN 1,523 40.23 0.25 38.87 20.6 56.1 22.6 7.04 6.20 2.95 5.02
5 6 4
17 Société Générale SA FRANCE 1,521 27.46 4.51 55.20 12.8 32.4 3.38 8.87 36.0 14.8 4.38
3 8 5 5
18 Royal Bank of Scotland Group Plc (The) UNITED 1,516 32.66 2.15 44.58 20.6 38.6 6.88 7.14 30.9 9.99 6.40
KINGDOM 1 7 1
19 Banco Santander SA SPAIN 1,499 58.38 4.18 25.04 12.4 58.7 0.00 16.1 12.9 4.53 7.61
0 8 4 5
20 Lloyds Banking Group Plc UNITED 1,293 55.00 2.86 16.33 25.8 52.8 1.84 13.5 11.0 14.9 5.84
KINGDOM 1 0 4 8 0
21 Bank of Communications Co. Ltd CHINA 1,165 50.88 9.16 19.72 20.2 79.5 8.33 1.85 0.45 2.96 6.91
3 0
22 UBS Group AG SWITZERLAND 1,021 33.05 1.40 51.45 14.1 41.1 9.95 7.29 28.3 7.75 5.61
0 0 1
23 UniCredit SpA ITALY 979 51.25 4.54 36.48 7.74 52.3 11.3 16.6 9.72 3.85 6.11
6 4 2
24 ING Groep NV NETHERLANDS 968 62.79 4.59 27.75 4.87 63.0 0.00 17.0 12.3 2.09 5.47
7 6 0
25 Credit Suisse Group AG SWITZERLAND 945 30.75 0.11 44.74 24.4 43.9 11.5 20.7 6.78 11.9 4.94
0 9 8 8 3
26 Goldman Sachs Group, Inc UNITED STATES 860 4.46 4.11 70.39 21.0 10.3 17.8 21.3 14.4 25.7 10.2
OF AMERICA 4 6 5 0 5 7 7
27 China Merchants Bank Co Ltd CHINA 854 49.13 11.3 25.19 14.3 82.7 6.47 1.25 0.42 2.69 6.38
7 1 9
28 Royal Bank of Canada CANADA 852 41.68 0.97 46.94 10.4 46.4 12.5 16.7 10.4 8.24 5.58
1 3 1 9 5
29 Toronto Dominion Bank CANADA 851 47.69 4.43 40.39 7.50 61.8 9.78 2.86 14.0 5.47 5.95
5 9
30 Industrial Bank Co Ltd CHINA 838 32.67 13.4 40.86 13.0 82.5 7.82 2.24 0.15 1.50 5.69
3 4 9
31 Morgan Stanley UNITED STATES 826 9.19 7.37 71.04 12.4 16.8 17.4 17.0 15.1 24.2 9.21
OF AMERICA 0 5 6 3 5 9
32 Nordea Bank AB (publ) SWEDEN 764 52.37 3.22 33.73 10.6 40.2 0.00 29.9 12.7 12.8 4.37
8 4 1 0 0
33 Shanghai Pudong Development Bank CHINA 753 45.75 6.22 34.04 13.9 83.3 7.13 1.33 0.11 1.77 6.28
9 8
34 Banco Bilbao Vizcaya Argentaria SA SPAIN 749 52.70 2.68 33.42 11.1 57.5 8.50 11.4 8.92 5.92 7.62
9 9 5
35 Intesa Sanpaolo ITALY 748 48.82 4.66 39.85 6.67 42.9 4.22 22.4 7.89 15.6 6.93
1 0 5
36 China CITIC Bank Corporation Limited CHINA 746 49.41 5.00 31.52 14.0 87.3 2.29 2.21 0.14 1.60 6.38
7 8
37 National Australia Bank Limited AUSTRALIA 732 59.33 5.95 18.30 16.4 48.4 10.0 15.8 8.96 11.4 5.20
2 7 3 9 5
38 China Minsheng Banking Corporation CHINA 704 44.30 21.4 17.39 16.8 82.1 6.00 3.15 0.05 1.99 6.70
3 8 0
39 Commonwealth Bank of Australia AUSTRALIA 698 73.07 1.00 18.30 7.63 57.7 7.66 19.4 5.92 3.19 6.00
4 9
40 Standard Chartered Plc UNITED 695 40.17 11.5 30.67 17.5 61.4 1.13 13.4 12.0 4.79 7.10
KINGDOM 7 9 7 3 8
41 Bank of Nova Scotia (The) - SCOTIABANK CANADA 691 50.11 8.43 31.53 9.93 64.7 8.72 5.39 5.58 9.64 5.88
7
42 Australia and New Zealand Banking Group AUSTRALIA 657 64.86 0.00 20.84 14.3 56.1 10.3 11.8 8.52 7.09 6.05
Limited 0 5 2 7
43 Commerzbank AG GERMANY 628 37.41 5.72 49.24 7.63 56.0 11.4 7.41 17.5 2.30 5.31
1 0 6
44 Westpac Banking Corporation AUSTRALIA 608 75.97 1.71 16.11 6.20 53.9 6.55 22.6 7.87 2.67 6.32
9 1
45 Natixis SA FRANCE 573 20.86 11.8 50.42 16.8 26.3 18.2 10.6 22.2 18.7 3.83
2 9 9 5 2 0 2
46 Bank of Montreal-Banque de Montreal CANADA 523 46.73 1.18 38.58 13.5 65.7 11.0 0.65 7.27 9.62 5.68
0 0 8

71
 Assets (% total assets) Liabilities and equity (% total assets)

Short term borrowing

Long term borrowing

Total

Interbank lending

Derivatives and
assets

Other assets
Bank Country

Securities
Net loans
(billions

Deposits

trading

Equity
Other
)

47 Danske Bank A/S DENMARK 518 47.23 3.64 33.67 15.4 27.6 10.5 30.3 14.0 12.8 4.63
6 3 1 5 7 1
48 China Everbright Bank Co Ltd CHINA 491 46.20 11.4 28.16 14.1 82.7 6.13 2.02 0.00 2.14 6.94
7 6 7
49 Banco do Brasil S.A. BRAZIL 481 49.45 4.53 30.21 15.8 36.6 24.6 25.2 0.23 6.52 6.69
2 8 0 8
50 Sberbank of Russia OAO RUSSIAN 426 70.84 2.47 11.65 15.0 75.2 4.50 6.26 1.64 3.20 9.14
FEDERATION 4 6
51 State Bank of India INDIA 425 61.55 1.76 28.47 8.22 78.3 8.23 6.92 0.00 0.00 6.49
6
52 US Bancorp UNITED STATES 419 60.41 0.00 25.04 14.5 70.8 6.63 8.15 0.24 3.34 10.7
OF AMERICA 5 5 9
53 Bank of New York Mellon Corporation UNITED STATES 395 15.94 30.9 40.60 12.5 72.0 8.30 5.16 1.57 2.99 9.98
OF AMERICA 7 0 1
54 Caixabank, S.A. SPAIN 385 58.86 1.96 28.11 11.0 63.1 0.00 9.97 4.86 14.5 7.49
8 7 1
55 Sumitomo Mitsui Trust Holdings, Inc JAPAN 383 55.75 0.36 15.75 28.1 54.0 28.6 7.43 1.75 2.24 5.89
4 5 3
56 Resona Holdings, Inc JAPAN 376 58.34 0.22 16.41 25.0 82.8 6.42 3.29 1.24 1.76 4.44
2 5
57 Itau Unibanco Holdings BRAZIL 366 38.22 2.73 41.88 17.1 24.7 24.7 18.3 2.14 20.7 9.31
7 0 2 9 3
58 Canadian Imperial Bank of Commerce CIBC CANADA 362 58.83 3.58 28.87 8.72 68.2 4.47 9.07 6.63 7.16 4.47
0
59 Nomura Holdings Inc JAPAN 359 3.42 0.00 85.83 10.7 2.79 40.6 19.2 22.8 8.09 6.41
5 6 5 0
60 Svenska Handelsbanken SWEDEN 356 62.59 4.92 12.29 20.2 44.2 18.3 24.9 2.56 5.68 4.23
0 4 9 1
61 PNC Financial Services Group Inc UNITED STATES 354 57.69 9.60 22.90 9.81 67.7 1.45 14.6 1.48 1.77 12.9
OF AMERICA 1 0 7
62 Banco Bradesco SA BRAZIL 350 35.30 1.67 47.19 15.8 52.7 5.02 7.98 0.29 25.1 8.85
5 2 4
63 DnB ASA NORWAY 336 56.47 9.38 23.07 11.0 45.3 6.50 23.9 5.36 12.2 6.58
8 9 4 3
64 Skandinaviska Enskilda Banken AB SWEDEN 335 47.18 3.04 24.72 25.0 40.4 14.0 14.0 9.57 17.1 4.83
5 3 2 1 2
65 DBS Group Holdings Ltd SINGAPORE 327 63.57 6.56 21.94 7.94 73.6 6.05 2.96 4.02 3.90 9.44
3
66 Shinhan Financial Group REPUBLIC OF 322 63.03 1.24 21.81 13.9 55.9 6.95 10.9 4.11 13.3 8.63
KOREA 2 8 3 9
67 Hua Xia Bank co., Limited CHINA 314 51.35 11.8 20.66 16.1 82.3 8.88 0.78 0.00 2.14 5.82
2 7 7
68 Capital One Financial Corporation UNITED STATES 311 66.27 1.38 20.63 11.7 67.1 1.77 12.9 0.32 2.83 15.0
OF AMERICA 3 3 5 0
69 BOC Hong Kong (Holdings) Ltd HONG KONG 305 45.63 12.3 28.60 13.3 76.8 0.06 1.07 1.97 11.9 8.06
8 8 9 5
70 Hana Financial Group REPUBLIC OF 298 64.14 1.20 18.83 15.8 61.1 7.24 8.83 4.27 11.6 6.84
KOREA 3 8 4
71 Oversea-Chinese Banking Corporation Limited SINGAPORE 296 52.11 11.3 13.47 23.0 66.0 4.67 2.68 1.45 16.2 8.94
OCBC 7 4 3 4
72 State Street Corporation UNITED STATES 295 6.29 39.5 38.80 15.3 78.1 5.34 3.08 1.36 4.77 7.29
OF AMERICA 7 4 7
73 Shinkin Central Bank JAPAN 290 15.46 1.05 54.25 29.2 79.2 3.84 11.3 0.68 0.88 3.99
4 2 9
74 Ping An Bank Co Ltd CHINA 289 40.89 26.0 18.54 14.5 58.7 33.6 0.53 0.29 1.82 4.90
7 0 8 9
75 KBC Groep NV/ KBC Groupe SA-KBC Group BELGIUM 287 49.39 0.01 45.89 4.71 55.5 7.86 6.95 9.07 13.9 6.62
9 2
76 Crédit Industriel et Commercial SA - CIC FRANCE 283 57.15 11.4 18.24 13.1 71.9 6.49 8.53 3.98 4.08 4.97
3 8 5
77 Swedbank AB SWEDEN 279 59.19 3.52 17.91 19.3 40.6 8.14 31.1 4.77 10.3 4.97
8 7 0 5
78 Dexia SA BELGIUM 270 54.85 3.51 22.56 19.0 34.1 0.00 38.6 22.5 3.10 1.60
8 4 5 1
79 Bank of Beijing Co Ltd CHINA 266 43.90 20.0 23.89 12.1 78.8 8.20 3.56 0.00 2.99 6.36
6 5 9
80 Woori Bank REPUBLIC OF 257 75.94 0.79 15.98 7.29 69.2 6.77 8.10 1.14 8.12 6.64
KOREA 3
81 Bankia, SA SPAIN 246 51.00 1.99 36.00 11.0 63.2 8.08 10.9 7.57 4.47 5.68
2 1 9
82 Cathay Financial Holdings Co Ltd TAIWAN 237 25.11 1.58 51.27 22.0 25.4 1.49 2.54 1.05 63.3 6.09
4 8 4
83 United Overseas Bank Limited UOB SINGAPORE 230 64.15 8.28 9.81 17.7 81.4 2.78 2.85 0.00 3.00 9.91
6 6
84 Banco de Sabadell SA SPAIN 228 69.43 1.72 15.04 13.8 73.9 5.34 8.80 1.13 4.86 5.93
0 6
85 Erste Group Bank AG AUSTRIA 221 62.53 4.44 26.03 6.99 69.9 1.61 14.5 4.17 2.59 7.10
8 6
86 VTB Bank (public joint-stock company)-JSC RUSSIAN 211 62.88 10.2 12.37 14.5 58.2 8.31 19.1 1.90 3.06 9.28
VTB Bank FEDERATION 0 5 9 7
87 Industrial Bank of Korea REPUBLIC OF 210 72.70 1.47 16.36 9.46 40.5 8.74 35.1 1.73 6.69 7.10
KOREA 9 5
88 Swiss Life Holding SWITZERLAND 201 10.70 0.00 70.26 19.0 1.57 - 2.18 13.7 77.6 6.29
4 1.41 2 4
89 Banca Monte dei Paschi di Siena SpA-Gruppo ITALY 199 63.42 3.37 24.00 9.22 50.4 13.3 17.7 9.25 3.85 5.28
Monte dei Paschi di Siena 8 9 6
90 Daiwa Securities Group Inc JAPAN 192 1.21 0.00 77.83 20.9 12.5 46.2 8.53 22.1 4.74 5.79
6 4 5 5
91 BB&T Corporation UNITED STATES 191 64.56 0.43 22.43 12.5 69.5 2.03 12.1 0.52 2.58 13.1
OF AMERICA 8 2 8 6
92 SunTrust Banks, Inc. UNITED STATES 189 70.46 0.06 18.42 11.0 76.6 3.24 5.35 0.69 1.75 12.2
OF AMERICA 7 9 9
93 Fubon Financial Holding Co Ltd TAIWAN 186 29.41 3.17 52.90 14.5 35.7 2.76 2.76 0.97 50.7 7.02
2 0 9

72
 Assets (% total assets) Liabilities and equity (% total assets)

Short term borrowing

Long term borrowing

Total

Interbank lending

Derivatives and
assets

Other assets
Bank Country

Securities
Net loans
(billions

Deposits

trading

Equity
Other
)

94 Banco Popular Espanol SA SPAIN 182 58.16 4.17 25.91 11.7 63.3 13.6 11.1 2.31 1.85 7.69
7 3 5 7
95 Exor Spa ITALY 175 n.a, 0.00 4.07 n.a. n.a. n.a. 37.4 0.00 n.a. 15.3
3 9
96 Malayan Banking Berhad - Maybank MALAYSIA 175 64.46 2.53 19.42 13.5 77.0 1.47 5.88 1.14 5.67 8.79
9 4
97 Deutsche Postbank AG GERMANY 172 63.08 1.74 32.49 2.69 89.0 0.00 4.50 0.58 1.61 4.30
1
98 Hang Seng Bank Ltd. HONG KONG 172 50.48 11.4 29.35 8.71 74.8 0.41 0.83 3.81 9.62 10.4
6 7 6
99 National Bank of Canada-Banque Nationale du CANADA 171 50.64 2.94 39.71 6.71 39.8 16.3 16.0 4.09 18.7 4.90
Canada 9 1 3 8
100 Charles Schwab Corporation UNITED STATES 164 8.55 5.77 67.19 18.4 68.8 0.22 1.55 0.00 21.8 7.58
OF AMERICA 9 5 1
Note: Deposit includes customer deposits (current, savings and term deposits) and deposits from banks. Data for certain
composition are assumed to be zero if the data for that composition are not available.
Sources: BankScope and Milken Institute.

73
Table 8. The world’s 100 biggest banks: Composition of Capital and Revenues, Q2 2015

Revenue and profitability

Non-interest income/ gross revenues (%)

Interest income/ Gross revenues (%)

Net gains (losses) on trading and

derivatives/gross revenue (%)
Tier 1
Bank Country regulat

ROA (%)

ROE (%)
ory
capital
ratio
(%)

1 Industrial & Commercial Bank of China (The) - ICBC CHINA 12.4 1.4 18.5 77.9 22.1 1.1
China Construction Bank Corporation Joint Stock
2 CHINA 12.4 1.5 20.1 76.4 23.6 1.1
Company
3 Agricultural Bank of China Limited CHINA 10.0 1.2 18.6 82.7 17.3 0.3

4 Bank of China Limited CHINA 11.6 1.2 15.0 72.4 27.6 1.1

5 HSBC Holdings Plc UNITED KINGDOM 13.4 0.8 10.8 57.6 42.4 14.2
UNITED STATES OF
6 JPMorgan Chase & Co 13.0 1.0 10.5 46.3 53.7 7.8
AMERICA
7 BNP Paribas SA FRANCE 10.8 0.4 9.0 53.2 46.8 14.6
Mitsubishi UFJ Financial Group Inc-Kabushiki Kaisha
8 JAPAN 12.4 0.5 7.5 51.6 48.4 7.8
Mitsubishi UFJ Financial Group
UNITED STATES OF
9 Bank of America Corporation 12.5 1.0 8.5 48.1 51.9 7.5
AMERICA
1
Deutsche Bank AG GERMANY 12.5 0.2 3.6 46.0 54.0 18.5
0
1
Barclays Plc UNITED KINGDOM 14.0 0.3 6.4 47.9 52.1 19.2
1
1 UNITED STATES OF
Citigroup Inc 13.8 1.1 8.9 62.9 37.1 9.8
2 AMERICA
1 UNITED STATES OF
Wells Fargo & Company 12.4 1.3 12.2 53.1 46.9 0.6
3 AMERICA
1
Crédit Agricole S.A. FRANCE 13.7 0.2 6.7 79.8 20.2 -0.2
4
1
Sumitomo Mitsui Financial Group, Inc JAPAN 12.3 0.6 9.3 54.4 45.6 5.0
5
1
Mizuho Financial Group JAPAN 11.5 0.4 7.8 50.3 49.8 9.2
6
1
Société Générale SA FRANCE 12.7 0.3 8.0 44.0 56.0 12.9
7
1
Royal Bank of Scotland Group Plc (The) UNITED KINGDOM 14.3 0.1 1.2 62.8 37.3 12.3
8
1
Banco Santander SA SPAIN 10.8 0.7 10.0 68.9 31.1 10.7
9
2
Lloyds Banking Group Plc UNITED KINGDOM 16.8 0.2 3.8 65.1 34.9 34.3
0
2
Bank of Communications Co. Ltd CHINA 10.9 1.1 15.2 76.7 23.3 -0.4
1
2
UBS Group AG SWITZERLAND 19.1 0.7 12.3 23.4 76.6 21.4
2
2
UniCredit SpA ITALY 11.4 0.3 4.6 59.6 40.4 5.9
3
2
ING Groep NV NETHERLANDS 12.4 0.7 12.3 81.0 19.0 10.4
4

74
2
Credit Suisse Group AG SWITZERLAND 16.7 0.5 9.6 37.0 63.0 14.9
5
2 UNITED STATES OF
Goldman Sachs Group, Inc 14.3 0.5 4.8 11.7 88.3 83.8
6 AMERICA
2
China Merchants Bank Co Ltd CHINA 10.5 1.3 20.0 67.5 32.5 1.6
7
2
Royal Bank of Canada CANADA 11.7 0.9 16.5 46.5 53.5 0.7
8
3
Toronto Dominion Bank CANADA 11.5 0.9 14.2 64.8 35.2 -0.1
0
2
Industrial Bank Co Ltd CHINA 9.0 1.2 19.7 76.7 23.3 0.9
9
3 UNITED STATES OF
Morgan Stanley 15.7 0.9 9.7 5.5 94.6 30.7
1 AMERICA
3
Nordea Bank AB (publ) SWEDEN 17.9 0.6 14.0 50.9 49.1 32.3
2
3
Shanghai Pudong Development Bank CHINA 9.1 1.1 18.9 79.5 20.5 1.4
3
3
Banco Bilbao Vizcaya Argentaria SA SPAIN 12.3 0.9 11.4 73.2 26.8 1.5
4
3
Intesa Sanpaolo ITALY 14.0 0.6 8.9 62.5 37.5 3.5
5
3
China CITIC Bank Corporation Limited CHINA 9.0 1.0 16.1 75.9 24.1 1.9
6
3
National Australia Bank Limited AUSTRALIA 11.1 0.8 14.2 73.2 26.8 6.7
7
3
China Minsheng Banking Corporation CHINA 9.2 1.4 20.6 68.3 31.8 0.4
8
3
Commonwealth Bank of Australia AUSTRALIA 11.6 1.1 18.5 69.0 31.0 3.9
9
4
Standard Chartered Plc UNITED KINGDOM n.a. 0.4 6.3 61.1 38.9 11.4
0
4
Bank of Nova Scotia (The) - SCOTIABANK CANADA 12.5 0.9 14.2 53.1 46.9 4.1
1
4
Australia and New Zealand Banking Group Limited AUSTRALIA 10.6 0.9 14.2 71.2 28.8 1.0
2
4
Commerzbank AG GERMANY 12.4 0.2 4.9 64.4 35.6 7.7
3
4
Westpac Banking Corporation AUSTRALIA 10.3 1.0 14.8 68.3 31.7 4.1
4
4
Natixis SA FRANCE 11.5 0.3 7.9 32.5 67.5 15.8
5
4
Bank of Montreal-Banque de Montreal CANADA 12.0 0.7 12.7 50.6 49.4 5.8
6
4
Danske Bank A/S DENMARK 16.5 0.5 11.8 74.9 25.1 27.0
7
4
China Everbright Bank Co Ltd CHINA 10.2 1.1 16.4 74.0 26.0 -0.8
8
4
Banco do Brasil S.A. BRAZIL 11.4 1.1 16.5 68.1 31.9 n.a.
9
5
Sberbank of Russia OAO RUSSIAN FEDERATION 9.6 0.7 8.0 77.2 22.8 4.0
0
5
State Bank of India INDIA 9.6 0.7 11.4 74.7 25.3 n.a.
1
5 UNITED STATES OF
US Bancorp 11.0 1.4 13.3 54.0 46.0 n.a.
2 AMERICA
5 UNITED STATES OF
Bank of New York Mellon Corporation 12.5 0.9 9.1 18.4 81.7 4.8
3 AMERICA
5
Caixabank, S.A. SPAIN 12.8 0.4 5.4 65.2 34.8 3.1
4
5
Sumitomo Mitsui Trust Holdings, Inc JAPAN 11.6 0.4 6.9 35.2 64.9 2.6
5
5
Resona Holdings, Inc JAPAN n.a. 0.5 10.9 67.4 32.7 0.6
6
5
Itau Unibanco Holdings BRAZIL n.a. 2.0 22.6 51.7 48.3 3.9
7

75
5
Canadian Imperial Bank of Commerce CIBC CANADA 12.5 0.9 19.1 56.7 43.3 -0.3
8
5
Nomura Holdings Inc JAPAN 13.5 0.6 10.0 7.5 92.5 32.0
9
6
Svenska Handelsbanken SWEDEN 25.0 0.6 13.0 71.8 28.2 5.8
0
6 UNITED STATES OF
PNC Financial Services Group Inc 12.0 1.2 9.0 55.4 44.6 n.a.
1 AMERICA
6
Banco Bradesco SA BRAZIL 12.9 1.7 20.0 74.0 26.0 n.a.
2
6
DnB ASA NORWAY 13.9 0.9 13.3 67.0 33.0 4.9
3
6
Skandinaviska Enskilda Banken AB SWEDEN 19.4 0.6 13.1 42.7 57.3 8.5
4
6
DBS Group Holdings Ltd SINGAPORE 13.4 1.1 11.7 66.5 33.5 11.3
5
6
Shinhan Financial Group REPUBLIC OF KOREA n.a. 0.8 8.6 72.0 28.0 5.0
6
6
Hua Xia Bank co., Limited CHINA 8.7 1.0 17.1 84.3 15.8 0.0
7
6 UNITED STATES OF
Capital One Financial Corporation 13.3 1.1 7.5 79.9 20.2 n.a.
8 AMERICA
6
BOC Hong Kong (Holdings) Ltd HONG KONG 12.4 1.2 15.2 72.4 27.6 2.5
9
7
Hana Financial Group REPUBLIC OF KOREA 9.7 0.5 6.8 60.2 39.9 6.2
0
7
Oversea-Chinese Banking Corporation Limited OCBC SINGAPORE 14.1 1.1 12.2 58.8 41.2 4.5
1
7 UNITED STATES OF
State Street Corporation 14.2 0.6 8.0 21.9 78.1 10.8
2 AMERICA
7
Shinkin Central Bank JAPAN n.a. 0.2 5.6 70.6 29.4 15.2
3
7
Ping An Bank Co Ltd CHINA 7.3 1.0 17.9 83.2 16.8 0.1
4
7
KBC Groep NV/ KBC Groupe SA-KBC Group BELGIUM 18.6 0.9 13.7 65.1 34.9 7.4
5
7
Crédit Industriel et Commercial SA - CIC FRANCE 11.5 0.5 10.1 49.3 50.7 n.a.
6
7
Swedbank AB SWEDEN 25.0 0.7 14.5 61.4 38.6 3.2
7
7
Dexia SA BELGIUM n.a. 0.0 0.8 -76.2 176.2 -89.4
8
7
Bank of Beijing Co Ltd CHINA 8.6 1.3 19.7 85.1 14.9 1.0
9
8
Woori Bank REPUBLIC OF KOREA 10.8 0.4 5.7 75.6 24.4 1.3
0
8
Bankia, SA SPAIN 12.8 0.5 8.9 73.7 26.3 -1.8
1
8
Cathay Financial Holdings Co Ltd TAIWAN n.a. 1.2 18.5 107.3 -7.3 -83.6
2
8
United Overseas Bank Limited UOB SINGAPORE 14.0 1.0 10.2 61.9 38.1 6.9
3
8
Banco de Sabadell SA SPAIN 11.5 0.4 6.0 47.3 52.8 3.6
4
8
Erste Group Bank AG AUSTRIA 11.6 0.7 9.9 66.4 33.6 3.2
5
8
VTB Bank (public joint-stock company)-JSC VTB Bank RUSSIAN FEDERATION 10.1 -0.3 -3.1 57.7 42.4 10.9
6
8
Industrial Bank of Korea REPUBLIC OF KOREA 9.0 0.6 8.2 87.9 12.1 4.0
7
8
Swiss Life Holding SWITZERLAND n.a. 0.5 8.7 119.1 -19.1 50.3
8
8 Banca Monte dei Paschi di Siena SpA-Gruppo Monte dei
ITALY 11.7 0.2 4.9 58.1 41.9 4.8
9 Paschi di Siena
9
Daiwa Securities Group Inc JAPAN 20.4 0.8 13.4 11.1 89.0 35.8
0

76
 9 UNITED STATES OF
BB&T Corporation 12.1 1.1 8.0 58.7 41.3 n.a.
1 AMERICA
9 UNITED STATES OF
SunTrust Banks, Inc. 10.8 1.0 8.3 60.1 39.9 2.6
2 AMERICA
9
Fubon Financial Holding Co Ltd TAIWAN n.a. 1.5 20.1 92.6 7.5 -45.3
3
9
Banco Popular Espanol SA SPAIN 12.5 0.2 2.9 61.0 39.1 0.4
4
9
Exor Spa ITALY n.a. 0.9 6.3 -1.9 101.9 -0.2
5
9
Malayan Banking Berhad - Maybank MALAYSIA 13.4 1.0 11.5 68.0 32.0 -3.5
6
9
Deutsche Postbank AG GERMANY 10.3 0.3 7.3 62.2 37.8 1.3
7
9
Hang Seng Bank Ltd. HONG KONG 18.5 3.2 32.2 70.5 29.5 8.3
8
9
National Bank of Canada-Banque Nationale du Canada CANADA 12.3 0.9 16.7 46.9 53.1 4.2
9
1
UNITED STATES OF
0 Charles Schwab Corporation 16.0 0.9 11.5 37.5 62.5 13.0
AMERICA
0
Note: Data for certain composition are assumed to be zero if the data for that composition are not available. Tier 1
regulatory capital ratio is the ratio of Tier 1 capital to risk-weighted assets, where Tier 1 capital is common stockholders'
equity, qualifying perpetual preferred stock, and minority interest in consolidated subsidiaries less goodwill and other
disallowed intangibles.
Sources: BankScope, Bloomberg and Company’s website.

Figure 11. Complexity: Selected banks’ domestic and foreign assets and revenues

77
Note: The ratios of assets for JP Morgan Chase, Citigroup, Wells Fargo and BNY Mellon only refer to the FDIC-insured
subsidiaries of the holding companies. The ratio of assets for Morgan Stanley refer to assets under management or
supervision. The other ratios refer to the holding companies. The ratios of revenue are for holding companies. The ratios
for Citigroup, BNY Mellon and State Street refer to total revenue, the ratios for Goldman Sachs and Morgan Stanley
refer to net revenue.
Sources: FDIC, Quarterly reports and Bankscope.

78
Table 9. Correlation table for 100 largest banks

Net
gains
(lo sses)
on
trading
No n- and
Tier 1 Interest interest derivativ
To tal Sho rt Lo ng regulato inco me/ inco me/ es/gro s
A ssets Interban term term Derivati ry Gro ss gro ss s
($ billio n Net k Securiti Other Depo sit bo rro wi bo rro wi ves and capital ROA revenue revenue revenue
s) lo ans lending es assets s ng ng trading Other Equity ratio (%) (%) ROE (%) s (%) s (%) (%)

To tal A ssets
1.0000
($ billio ns)

Net lo ans -0.1614 1.0000

(0.1106)
Interbank
0.0507 -.279** 1.0000
lending
(0.6164) (0.0051)
Securities 0.1298 -.876** -0.0750 1.0000

(0.1982) (0.0000) (0.4585)

Other assets 0.1132 -.268** -0.0770 -0.0245 1.0000

(0.2648) (0.0073) (0.4485) (0.8097)

Depo sits 0.0449 .486** .282** -.621** -0.0757 1.0000

(0.6587) (0.0000) (0.0047) (0.0000) (0.4564)

Sho rt term
-0.0482 -.337** -0.0577 .323** 0.1943 -.465** 1.0000
bo rro wing
(0.6358) (0.0006) (0.5706) (0.0011) (0.0539) (0.0000)
Lo ng term
-0.1942 0.1575 -.271** -0.0857 -0.0864 -.538** 0.1419 1.0000
bo rro wing
(0.0529) (0.1194) (0.0064) (0.3963) (0.3949) (0.0000) (0.1612)
Derivatives
.303** -.415** -0.1796 .572** -0.1080 -.625** 0.1741 0.1766 1.0000
and trading
(0.00) (0.00) (0.07) (0.00) (0.29) (0.00) (0.08) (0.08)
Other -(0.14) -.426** -(0.13) .467** (0.15) -.584** -(0.10) -(0.02) (0.13) (1.00)

(0.18) (0.00) (0.19) (0.00) (0.14) (0.00) (0.31) (0.87) (0.20)

Equity -(0.03) (0.12) (0.03) -(0.18) -(0.08) .201* -(0.16) -(0.03) -.365** -(0.05) (1.00)

(0.75) (0.24) (0.79) (0.07) (0.43) (0.05) (0.11) (0.76) (0.00) (0.59)
Tier 1
regulato ry
-(0.07) -.232* -(0.16) .244* .230* -.448** (0.12) .352** .278** .391** -(0.08) (1.00)
capital ratio
(%)
(0.53) (0.03) (0.14) (0.02) (0.03) (0.00) (0.27) (0.00) (0.01) (0.00) (0.48)
ROA (%) (0.02) (0.06) (0.17) -(0.11) -(0.08) .277** -(0.10) -.302** -.443** (0.06) .451** -(0.03) (1.00)

(0.83) (0.58) (0.09) (0.28) (0.41) (0.01) (0.32) (0.00) (0.00) (0.55) (0.00) (0.77)
ROE (%) (0.02) (0.02) (0.18) -(0.06) -(0.06) .221* (0.01) -.304** -.354** (0.09) -(0.02) -(0.01) .849** (1.00)

(0.82) (0.84) (0.07) (0.57) (0.56) (0.03) (0.90) (0.00) (0.00) (0.40) (0.82) (0.93) (0.00)
Interest
inco me/
(0.04) .323** (0.00) -.242* -(0.11) .320** -.324** -.385** -.371** (0.20) (0.00) -.356** .268** .359** (1.00)
Gro ss
revenues (%)
(0.67) (0.00) (0.98) (0.02) (0.27) (0.00) (0.00) (0.00) (0.00) (0.05) (0.99) (0.00) (0.01) (0.00)
No n-interest
inco me/
-(0.04) -.323** (0.00) .242* (0.11) -.320** .324** .385** .371** -(0.20) (0.00) .356** -.268** -.359** -1.000** (1.00)
gro ss
revenues (%)
(0.67) (0.00) (0.98) (0.02) (0.27) (0.00) (0.00) (0.00) (0.00) (0.05) (0.99) (0.00) (0.01) (0.00) (0.00)
Net gains
(lo sses) o n
trading and
(0.11) -.290** -(0.04) .325** (0.02) -.236* .268* (0.03) .270** -(0.04) (0.14) .370** -(0.15) -(0.18) -(0.02) (0.02) (1.00)
derivatives/gr
o ss revenue
(%)
(0.29) (0.01) (0.72) (0.00) (0.87) (0.02) (0.01) (0.75) (0.01) (0.70) (0.17) (0.00) (0.14) (0.09) (0.82) (0.82)

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

79
Figure 12. 100 largest banks: Total assets and number of subsidiaries; simple regression
10

8
Log number of subsidiaries

0
5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5
Log Assets (US $ billion)

Note: The regression is significant at the 1% level.

80
Table 10. Regressions
(1) (2) (3) (4)
VARIABLES Z-Score Z-Score ROA ROA

ln_TA -1.3443 0.6136 -0.0006** -0.0005

(-0.5271) (0.2299) (-1.9872) (-1.3549)
Tier 1 0.5123 0.8386 -0.0002** -0.0001*
(0.8603) (1.3782) (-2.3291) (-1.8435)
Deposit/TA 73.3455*** 60.2089*** 0.0132*** 0.0121***
(5.8013) (4.3772) (8.6056) (7.2954)
Loan/TA (%) -0.4882*** -0.4776*** -0.0000** -0.0000**
(-3.2123) (-3.1565) (-2.2047) (-2.2477)
Non-interest/Gross revenue -0.3903*** -0.2578* 0.0000 0.0000
(-2.8212) (-1.7345) (1.0736) (1.5725)
Leverage -0.0116 0.0008 0.0000*** 0.0000***
(-0.3031) (0.0221) (3.3785) (3.5539)
ln_Subsidiaries -4.5333** -0.0004
(-2.3626) (-1.6282)
Constant 47.7024** 59.3506*** 0.0056** 0.0066**
(2.1464) (2.6193) (2.2385) (2.5472)

Observations 474 474 557 557

R-squared 0.1234 0.1338 0.1576 0.1617
Note: t-statistics in parentheses and *** p<0.01, ** p<0.05, * p<0.1.

81
Table 11. Impact of actual and proposed limits on the size of US banks, Q2 2015

Total Non-
Total deposits Non- deposit
Total
Total assets deposits/all exceeding deposit liabilities
deposits
(billions) deposits 10% of all liabilities exceeding
(billions)
(%) deposits (% of GDP) 4% of GDP
(billions) (billions)
JPMorgan Chase & Co 2,450 1,287 10.8 94.1 5.1 204.5
Bank of America Corporation 2,149 1,150 9.6 (43.7) 4.2 31.3
Citigroup Inc 1,829 908 7.6 (285.2) 3.9 (16.6)
Wells Fargo & Company 1,721 1,186 9.9 (7.4) 1.9 (372.4)
Goldman Sachs Group, Inc 860 89 0.7 (1,104.2) 3.8 324.9*
Morgan Stanley 826 139 1.2 (1,054.0) 3.4 252.2*
US Bancorp 419 297 2.5 (896.4) 0.4 (639.6)
Bank of New York Mellon Corporation 395 284 2.4 (908.8) 0.4 (645.1)
PNC Financial Services Group Inc 354 240 2.0 (953.5) 0.4 (648.2)
Capital One Financial Corporation 311 209 1.7 (984.5) 0.3 (661.5)
State Street Corporation 295 231 1.9 (962.7) 0.2 (674.1)
SunTrust Banks, Inc. 189 145 1.2 (1,048.3) 0.1 (695.9)
BB&T Corporation 191 133 1.1 (1,060.5) 0.2 (683.4)
Charles Schwab Corporation 164 113 0.9 (1,080.3) 0.2 (678.3)
American Express Company 157 47 0.4 (1,146.1) 0.5 (628.4)
Note*: For Goldman Sachs and Morgan Stanley, the figures in the last column are based on 2% of GDP.
Sources: Bank quarterly reports, FDIC, and Bureau of Economic Analysis.

Figure 13. The 15 biggest trading losses relative to equity by type of firms since 1990

Source: Barth and McCarthy (2012).

82
Figure 14. Impact of the treatment of derivatives on the leverage ratios for the U.S. 15 biggest banks
Q2, 2015

Leverage ratios (total assets/equity capital) for banks under U.S. GAAP and IFRS
%
U.S. GAAP IFRS

20 18.5
18
16
13.8 13.7 14.0
14
11.2 11.6
12 11.0 10.9
10.2 9.7 10.010.3
10 8.5 9.0 9.4 9.3 9.3
8.3
7.7 7.8 7.6 7.6 8.1 8.3
8 6.7 6.7
6
4
2
0
JPMorgan Bank of Citigroup Inc Wells Fargo Goldman Morgan US Bancorp Bank of New PNC Capital One State Street BB&T SunTrust
Chase & Co America & Company Sachs Group, Stanley York Mellon Financial Financial Corporation Corporation Banks, Inc.
Corporation Inc Corporation Services Corporation
Group Inc

Sources: BankScope and annual reports.

Table 12. Basel III: New capital guidelines and phase-in arrangements beginning January 1, 2013
Basel III (Finalized in December 2010, and phased in over the period 2013-2018)
As of 1
Regulatory Capital Requirements
2013 2014 2015 2016 2017 2018 January
2019
Common Equity Leverage Ratio (only high-
quality Tier 1 capital, common stock plus Test period 3.0% 3.0%
retained earnings) (1)
Minimum Common Equity Capital Ratio
3.5% 4.0% 4.5% 4.5% 4.5% 4.5% 4.5%
(CET1 capital ratio)
Capital Conservation Buffer (CCB), must
0.0% 0.0% 0.0% 0.625% 1.25% 1.875% 2.50%
met with Tier 1 capital
Minimum Common Equity Capital Ratio
3.5% 4.0% 4.5% 5.125% 5.8% 6.375% 7.0%
plus Conservation Buffer
Minimum Tier 1 Capital 4.5% 5.5% 6.0% 6.0% 6.0% 6.0% 6.0%
Minimum Total Capital (Tier 1 plus Tier 2
8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
capital)
Minimum Total Capital plus Conservation
8.0% 8.0% 8.0% 8.625% 9.250% 9.875% 10.5%
Buffer
Countercyclical Capital Buffer
(discretionary, 0 to 2.5%), must met with 0.0% 0.0% 0.0% 0.625% 1.25% 1.875% 2.50%
Tier 1 capital (2)
25% of 1% 50% of 1% 75% of 1%
Capital Surcharge for Global SIBs 0.0% 0.0% 0.0% 1% to 3.5%
to 3.5% to 3.5% to 3.5%
Note: (1) Basel III has a minimum leverage ratio of 3%,, calculated as the ratio of Tier 1 capital to balance sheet exposures plus
certain off-balance sheet exposures. (2) In the U.S., this only applies to “Advanced Approaches Banking Organizations” (i.e., U.S.
banking organizations with $250 billion or more in consolidated total assets or $10 billion or more in consolidated total on-balance
sheet foreign exposure).
Sources: BIS, U.S. Federal Reserve, Barth, Caprio and Levine (2012).

83
Table 13. Information on regulations for too big to fail banks, by country
Do you If yes, do you have any tools to oversee more closely and/or limit the activities of
supervise large/interconnected institutions?
systemic Additio
Restric Closer Restrict
institutions Additio Asset/ris Restric nal
Additio tions/ or ions on
in a nal k tions/ corpora
Country nal limits more the
different liquidit diversifi limits te taxes Othe
capital on size freque group's
way than y cation on for r
require of nt legal
non- require requirem activiti large
ments instituti supervi structur
systemic ments ents es instituti
on sion e
ones? ons
Australia Yes No No No No No No Yes No No
Austria Yes No No No --- No Yes Yes No No
Yes
a
Belgium Yes Yes No No Yes No No Yes No
Yes
b
Brazil Yes No No No No No No Yes No
Canada No --- --- --- --- --- --- --- --- ---
China Yes Yes Yes Yes --- --- --- Yes --- ---
Denmark Yes No No No No No No Yes No No
France Yes No No No No No Yes Yes No No
Germany --- --- --- --- --- --- --- --- --- ---
India Yes No No No No No No No No No c
Ireland Yes Yes Yes No No Yes No Yes No ---
Italy Yes Yes No Yes Yes No No Yes No --- d
Korea, Rep. No --- --- --- --- --- --- --- --- ---
Yes
e
Malaysia Yes Yes Yes Yes Yes Yes No Yes Yes
Netherlands Yes No No No No No No Yes No No
Norway Yes Yes No Yes Yes No No Yes No No
Russia Yes No No No No No No Yes No No
Singapore Yes Yes Yes Yes Yes Yes No Yes Yes No
South Africa Yes Yes Yes Yes Yes Yes No Yes Yes No f
Yes
g
Spain Yes No No No No No No Yes No
Taiwan No --- --- --- --- --- --- --- --- ---
Switzerland No --- --- --- --- --- --- --- --- ---
United
Kingdom Yes Yes Yes Yes Yes No No Yes Yes ---
United States Yes Yes Yes Yes Yes No No Yes No Yes
aAssessment of business plan.
bDedicated supervisory teams - Usually a group of examiners, headed by a supervisor, is responsible for a group of
Brazilian banks. In the case of systemic banks, The Central Bank of Brazil has decided to associate each financial
conglomerate to a group of examiners and a dedicated supervisor.
c Close monitoring through off-site financial conglomerates returns.
d The current framework does not provide for a special regulatory regime for systemically important institutions. In

accordance with the proportionality principle - which guides the whole supervisory activity - large and important banks
(and banking groups) are subject to a more intensive supervision.
e Requirements to obtain the Bank's approval prior to declaring dividend and bonus by financial institutions.
f Large/interconnected banks are supervised in terms of Basel II. In terms of the supervisory review and evaluation

process (SREP), all banks in the sector are risk graded according to high, medium or low risk. The supervisory cycle
will be adapted to 12, 18 or 24 months based on the risk classification. Large/interconnected banks are graded as high
risk and, as a result, subject to more intensive supervision.
g Banks are subject to more intense reporting requirements and ad-hoc demand for information, including periodical

internal management reports.

Source: World Bank Survey IV, September 2012.

84
Table 14. Information on factors considered for too big to fail banks, by country
Is there a Which of the following factors do you consider in assessing systemic risk?
specialized Sectora
department in Gro
Ba Ban Ban l FX Bank Sto
your agency wth
nk k Bank k compo posit non- Bank ck Hou
Country dealing with in Ot
cap leve profita liqui sition ion perfor provisi mar sing
financial ban he
ital rage bility dity of bank of ming oning ket pric
stability and k r
rati ratio ratios ratio loan bank loan ratios pric es
systemic cred
os s s portfoli s ratios es
supervision? it
os
X
a
Australia No X X X X X X X X X X X
Austria Yes X X X X X X X X X X X ---
Belgium Yes X X X X X X X X X --- X ---
X
b
Brazil Yes X X X X X X X X X X ---
X
c
Canada Yes X X X X X X X X X X X
China --- --- --- --- --- --- --- --- --- --- --- --- ---
Denmark No X X X X X X --- X X --- --- ---
X
d
France Yes --- --- --- --- --- --- --- --- --- --- ---
Germany --- --- --- --- --- --- --- --- --- --- --- --- ---
India Yes X X X X X X X X X X X ---
X
e
Ireland Yes --- --- --- --- --- --- --- --- --- --- ---
Italy No X X X X X X --- X X X X ---
Korea,
Rep. No --- --- --- --- --- --- --- --- --- --- --- ---
X
f
Malaysia Yes --- --- --- --- --- --- --- --- --- --- ---
Netherland
s Yes X X X X X X X X X X X ---
Norway No X --- --- X X X --- X --- X X ---
Russia Yes X --- X X --- --- X X X X X ---
X
g
Singapore Yes X X X X X X X X X X X
South X
h
Africa Yes X X X X X --- X X --- --- ---
Spain Yes X X X X X X --- X X X X Xi
Switzerlan
d No X X --- X X --- --- X --- --- X ---
Taiwan No --- --- --- --- --- --- X --- --- --- ---
United
Kingdom Yes X X X X X X X X X X X ---
United
States No X X X X X X X X X X X Xj
a All of the above and much more, depending on industry risk profiles.
b The Central Bank of Brazil also considers the following factors: open market positions, gold positions, fixed income
positions, reserve requirements positions at the Central Bank of Brazil.
c Interconnectivity across FRFI's. Central Bank opinion.
d Comprehensive approach based on multiple indicators.
e The Central Bank would use a number of the above factors in assessing systemic risks. This is currently being enhanced.
f 1. Key financial soundness indicators for insurance/takaful sector; 2. Household and business sector financial position,

indebtedness and debt repayment/leverage capacity, including payment arrears exposures and interbank rates; 3.
Contagion effects (arising from linkages between financial and non-financial sectors, markets, infrastructure and
institutions, including cross border linkages); 4. Capital flow indicators; 5. External assets and liabilities of Financial
Institutions and non-Financial Institutions
g All market risk positions (not just FX positions) of banks, household and corporate leverage ratios, geographic

composition of bank portfolios, bank credit concentration risks, bank contingent liabilities, net private capital flows.
h Household indebtedness and credit standing of consumers, corporate sector strength and activity, financial strength and

regulatory compliance of non-bank financial sector, financial market trends, external vulnerabilities (e.g foreign debt
ratios, reserves ratios, exchange rate pressures).
i All previous factors are considered (with the exception of FX position in banks) as well as others (sovereign spreads,

macroeconomic variables)
j We consider numerous factors and not just one. Source: World Bank Survey IV, September 2012.

85
APPENDIX

86
APPENDIX 1: Designation of U.S. SIFIs: Something’s Amiss51

In addition, Dodd–Frank subjects the largest banks, defined as those with assets of 50
billion or more, to an enhanced supervisory regime. That enhanced regime includes
additional capital requirements and heightened regulatory scrutiny. Table A1 lists the
BHCs that are currently designated as SIFIs as well as identifying those that are also
designated as Global Systemically Important Banks (G-SIBs) by the Financial Stability
Board (FSB). As of June 2015, the biggest SIFI is JPMorgan Chase, with 2.5 trillion in
assets, while the smallest one is Zions, with 58 billion in assets. (See Figure A1 for a
visualization of the striking differences in asset size among SIFIs.) Clearly, these two
institutions pose different degrees of systemic risk, with one more than 40 times the size
of the other. This disparity indicates the arbitrariness of designating SIFIs solely on the
basis of whether a BHC has 50 billion in assets.

New York Community Bancorp (not shown), moreover, has total assets of 49 billion,
which places it just below the threshold for the SIFI designation. The 9 billion difference
between it and Zions can’t justify the identification of one, and not the other, as a SIFI
based on risk concerns. In short, there is no evidence to support the use of a 50 billion
threshold set by law to distinguish SIFIs from the rest. Such a static and arbitrary threshold
incentivizes institutions just below the limit to curtail their growth, while those just above
have a motive to increase their size to spread the additional costs imposed by being subject
to enhanced supervision. Surely, this was not the intent of the law.

If such a static threshold is to be used, it should be much higher. A 500 billion threshold
would include only the top six BHCs in Table A1, which accounted for 61 percent of total
BHC assets as of June 30, 2015. Alternatively, a threshold of 250 billion would include
only the top 11 BHCs, which accounted for 73 percent of BHC assets. These two figures,
moreover, are free of a key problem associated with the 50 billion threshold: The
institutions on either side of a 250 billion or 500 billion threshold will have far greater

51
This appendix is taken from the Milken Institute report, “Designation of Bank SIFIs: An Arbitrary
Threshold for Risk”, which is co-authored by James R. Barth and Moutusi Sau.

87
differences in assets. Of course, if either of these figures were used to designate SIFIs, the
threshold should change over time, perhaps by linking them to GDP growth.

Table A1 also shows the eight BHCs that have been designated G-SIBs by the Financial
Stability Board. Each has total assets greater than 250 billion. More importantly, the G-
SIB designation is not based solely on asset size. As Figure 10 shows, five factors are used
in the designation process, a far more appropriate basis for designating a BHC as a SIFI.
Indeed, the size factor only accounts for 20 percent in calculating the final score that
captures the global systemic risk presented by an institution.

It should also be noted that the list of G-SIBs is not static but can change over time
depending on the extent to which the business model of an institution evolves. For example,
Banco Bilbao Vizcaya Argentaria was added to the list in 2012, the Industrial and
Commercial Bank of China Ltd. was added in 2013, and Agricultural Bank of China was
added in 2014. Importantly, an institution’s score relating to global systemic risk may even
be adjusted based on supervisory judgment of the FSB. In a similar manner, if the threshold
for designating a SIFI were increased to 250 billion or 500 billion, the Federal Reserve
Board could use its judgment to determine whether a BHC with less should nevertheless
be so designated.

It is important to point out that the Office of Financial Research (OFR), housed within the
U.S. Treasury Department, recently issued a report evaluating the systemic importance of
the largest BHCs based on size, interconnectedness, complexity, global activity, and
substitutability.52 These are the same factors used to designate G-SIBs (see Figure 10). The
report found that the eight BHCs designated as G-SIBs had the highest systemic importance
scores, ranging from a low of 1.72 percent for Wells Fargo to a high of 5.05 percent for
JPMorgan Chase. In sharp contrast, however, the other 25 BHCs had an average score of
just 0.14 percent. On the basis of their findings, it was concluded that “the largest banks
tend to dominate all indicators of systemic importance.”

. Meraj Allahrakha, Paul Glasserman, and H. Peyton Young, “Systemic Importance Indicators for 33 U.S.
25

Bank Holding Companies: An Overview of Recent Data,” Office of Financial Research Brief Series,
February 12, 2015.

88
The authors’ use of more than just a size measure to evaluate the systemic importance of
BHCs is consistent with another report issued by the Bank of Canada. 53 The report
concluded with the statement, “While regulators take different approaches in assessing
systemic importance, all of them look beyond size to evaluate the importance of each
institution for the financial system.”

It is also interesting to note that a recently published paper 54 by three economists—one of

whom received the Nobel Prize for economics—at the New York University Stern School
of Business reached a similar conclusion to that of the OFR paper. The authors
implemented a model based on publicly available data to compute Systemic Risk
(SRISK%), which is a measure of the percentage of the capital an institution is expected
to need if there is another financial crisis. The results of their analysis for most of the BHCs
listed in Table A1 are reported in Table A2, with the BHCs ranked by those with the highest
risk to those with the lowest. Bank of America has the highest score at 18.83 percent, while
all of the BHCs with fewer than 500 billion have scores equal to or less than 0.7 percent,
with the exception of Bank of New York Mellon and State Street Corp., which are
designated a G-SIB and have a score of 1.79 percent and 1.67 percent respectively.

Once again, there are substantial differences in the evaluation of the systemic risk posed
by the BHCs with 50 billion or more in assets, with the evidence indicating that the number
of SIFIs is quite limited. In a study examining individual bank risk, moreover, it was found
that “among large banks only (over U.S.50 billion in assets), size per se ceases to be an
independent risk factor.” 55 Such studies further emphasize the need to base the SIFI
designation on factors beyond asset size or at least raise the threshold substantially above
50 billion. Even with a much higher threshold, the DFA specifies that “when differentiating
among companies for purposes of applying standards established under section 165, the
Board may consider the companies’ size, capital structure, riskiness, complexity, financial

26
. Éric Chouinard and Erik Ens, “Assessing the Systemic Importance of Financial Institutions,” Bank of
Canada, Financial System Review, December 2013.
27.
Viral Acharya, Robert Engle, and Matthew Richardson, “Capital Shortfall: A New Approach to Ranking
and Regulating Systemic Risks,” American Economic Review: Papers & Proceedings, 2012.
28.
Luc Laeven, Lev Ratnovski, and Hui Tong, “Bank Size and Systemic Risk”, IMF Staff Discussion Note,
May 2014.

89
activities, and any other risk-related factors the Board deems appropriate.”56 The Federal
Reserve Board could exercise this same discretion to identify BHCs that fall below a new,
higher threshold as SIFIs, if it so desired.

Some may argue that the 50 billion threshold is fine because it is better to err on the side
of caution when designating a BHC as a SIFI. However, this view ignores the fact that a
BHC that is incorrectly designated a SIFI is subject to unnecessary costs without offsetting
benefits. Some of these costs are associated with the following supervisory and regulatory
requirements. SIFIs are subject to higher capital, greater liquidity, and lower leverage
requirements. They are also subject to annual stress tests conducted by the Federal Reserve
and required to conduct their own semiannual stress tests. The Federal Reserve, moreover,
conducts an annual Comprehensive Capital Analysis and Review to assess whether SIFIs
have sufficient capital to continue operations through times of economic and financial
stress and that they have robust, forward-looking capital planning processes that account
for their unique risks. Furthermore, SIFIs are subject to an enhanced supervision
framework, and fees may be assessed on them to finance that supervision as well as the
OFR’s budget.

The costs imposed on BHCs due to being inappropriately designated SIFIs result in the
provision of fewer and more costly services to the communities they serve. Regulatory
authorities are also forced to spend more time dealing with these BHCs. The bottom line:
Economic resources are being misallocated based on the arbitrary and static 50 billion legal
threshold.

29.
Federal Register, Vol. 79, No. 84, May 1, 2014, P. 24529.

90
Table A1. U.S. Bank Holding Companies with Total Consolidated Assets Greater Than 50 Billion
Dollars
X denotes institutions that participated in DFA stress tests and/or were designated G-SIBs by the FSB (as of
June 30, 2015)
Participated in G-SIBs
Total Assets
Rank Institution Location Stress Test (November
( billions)
(March 2015) 2014)
1 JPMORGAN CHASE & CO. NEW YORK, NY 2,448 X X
2 BANK OF AMERICA CORPORATION CHARLOTTE, NC 2,152 X X
3 CITIGROUP INC. NEW YORK, NY 1,829 X X
SAN FRANCISCO,
4 WELLS FARGO & COMPANY 1,721 X X
CA
5 GOLDMAN SACHS GROUP, INC., NEW YORK, NY 860 X X
6 MORGAN STANLEY NEW YORK, NY 826 X X
MINNEAPOLIS,
7 U.S. BANCORP 419 X
MN
BANK OF NEW YORK MELLON
8 NEW YORK, NY 395 X X
CORPORATION
PNC FINANCIAL SERVICES GROUP,
9 PITTSBURGH, PA 354 X
INC.,
CAPITAL ONE FINANCIAL
10 MCLEAN, VA 311 X
CORPORATION
11 STATE STREET CORPORATION BOSTON, MA 295 X X
WINSTON SALEM,
12 BB&T CORPORATION 191 X
NC
13 SUNTRUST BANKS, INC. ATLANTA, GA 189 X
14 AMERICAN EXPRESS COMPANY NEW YORK, NY 157 X
15 ALLY FINANCIAL INC. DETROIT, MI 156 X
16 FIFTH THIRD BANCORP CINCINNATI, OH 142 X
17 CITIZENS FINANCIAL GROUP, INC. PROVIDENCE, RI 138 X
18 REGIONS FINANCIAL CORPORATION BIRMINGHAM, AL 122 X
19 NORTHERN TRUST CORPORATION CHICAGO, IL 120 X
20 BMO FINANCIAL CORP. WILMINGTON, DE 118 X
MUFG AMERICAS HOLDINGS
21 NEW YORK, NY 114 X
CORPORATION
22 M&T BANK CORPORATION BUFFALO, NY 97 X
23 KEYCORP CLEVELAND, OH 95 X
24 BANCWEST CORPORATION HONOLULU, HI 91
25 BBVA COMPASS BANCSHARES, INC. HOUSTON, TX 88 X
26 DISCOVER FINANCIAL SERVICES RIVERWOODS, IL 85 X
27 COMERICA INCORPORATED DALLAS, TX 70 X
HUNTINGTON BANCSHARES
28 COLUMBUS, OH 69 X
INCORPORATED
SALT LAKE CITY,
29 ZIONS BANCORPORATION 58 X
UT
Note: Savings and loan holding companies and foreign bank holding companies are excluded. Also,
BancWest Corporation will be subject to Dodd-Frank Act stress testing beginning January 1, 2016.

Source: National Information Center, http://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx; Board of

Governors of the Federal Reserve System, http://www.federalreserve.gov/bankinforeg/dfa-stress-tests.htm; Financial
Stability Board, http://www.financialstabilityboard.org/wp-content/uploads/r_141106b.pdf.

91
Figure A1. U.S. Bank Holding Companies with Total Consolidated Assets Greater Than 50 Billion
Dollars
($ billions)
$3,000

$2,500

$2,000

$1,500

$1,000

$500

$0

92
Table A2. U.S. Bank Holding Companies with Total Consolidated Assets Greater Than 50 Billion
SRISK%
Ran Total Assets (
Institution (September 18,
k billions)
2015)
1 JPMORGAN CHASE & CO. 2,448 16.4
2 BANK OF AMERICA CORPORATION 2,152 18.83
3 CITIGROUP INC. 1,829 13.95
4 WELLS FARGO & COMPANY 1,721 ≤ 0.10
5 GOLDMAN SACHS GROUP, INC. 860 4.95
6 MORGAN STANLEY 826 7.44
7 U.S. BANCORP 419 ≤ 0.10
BANK OF NEW YORK MELLON
8 395 1.79
CORPORATION
9 PNC FINANCIAL SERVICES GROUP, INC. 354 0.2
10 CAPITAL ONE FINANCIAL CORPORATION 311 ≤ 0.10
11 STATE STREET CORPORATION 295 1.67
12 BB&T CORPORATION 191 ≤ 0.10
13 SUNTRUST BANKS, INC. 189 0.83
14 AMERICAN EXPRESS COMPANY 157 ≤ 0.10
15 ALLY FINANCIAL INC. 156 N/A
16 FIFTH THIRD BANCORP 142 0.55
17 CITIZENS FINANCIAL GROUP, INC. 138 N/A
18 REGIONS FINANCIAL CORPORATION 122 0.61
19 NORTHERN TRUST CORPORATION 120 0.19
20 BMO FINANCIAL CORP. 118 N/A
21 MUFG AMERICAS HOLDINGS CORPORATION 114 N/A
22 M&T BANK CORPORATION 97 ≤ 0.10
23 KEYCORP 95 0.36
24 BANCWEST CORPORATION 91 N/A
25 BBVA COMPASS BANCSHARES, INC. 88 N/A
26 DISCOVER FINANCIAL SERVICES 85 N/A
27 COMERICA INCORPORATED 70 0.34
HUNTINGTON BANCSHARES
28 69 0.16
INCORPORATED
29 ZIONS BANCORPORATION 58 0.26
Source: http://vlab.stern.nyu.edu/analysis/RISK.USFIN-MR.MES#risk-graph.

93
APPENDIX 2: Industrial Loan Companies
The United States contains yet another major variant among banks: industrial loan
companies, or ILCs. These are FDIC-insured depository institutions, but some are owned
by non-financial corporations.57 Table A3 shows nine such institutions currently operating
in the United States. The largest non-financial company that owns one is General Electric
(GE), with $611 billion in assets although GE is in the process of divesting the financial
services arm. Toyota is the second largest owner with $400 billion in assets, while BMW
is third with $183 billion in assets. Under U.S. law, these corporate parents are not currently
considered to be financial services or bank holding companies even though they own
FDIC-insured depository institutions (see Barth, et al., 2012). For that reason, we do not
include the corporate parents in any of the earlier tables and figures, even though all of
them could qualify as one of the world’s 100 biggest banks. In practice, the ILCs have very
different business models from both bank holding companies and financial services
companies. As Table A3 indicates, moreover, the ILCs are relatively unimportant in terms
of their shares of the total assets and total equity of their parent companies.

No ILC has failed during the last 100 years. Restrictions on ILCs are motivated by the view
that they may take excessive risk in order to provide the parent corporation with a
competitive advantage. ILCs may enjoy the benefit of explicit deposit insurance but it can
safely be said that these financial firms do not enjoy implicit protection by the government.
They are likely to be disciplined, however, by their parent corporations, which in case of
failure of the ILCs risk their brand-names unless they take over the ILC’s liabilities towards
uninsured creditors. This discipline is a disincentive for lending without proper evaluation
of the credit worthiness of their customers.

Why would an ILC be competitive with other banks if they enjoy less implicit protection
by governments and possibly internal pressure from the parent to support corporate sales?
The performance of ILCs over long periods indicates that they are competitive without
taking excessive risk. Thus, the parental discipline seems to work while they also develop

57
The United States, with the exception of existing ILCs, is only one of two countries, the other being
Namibia, that currently prohibit non-financial companies from owning banks based on information from
World Bank Survey IV.

94
 specific expertise that banks cannot easily obtain. This expertise stems from knowledge
about the customer base of the corporation. Thus, the ILCs develop a competitive
advantage in serving a specific group of loan applicants and this advantage more than
compensates for the lower government support they enjoy.

Table A3. Importance of corporate parents to commercially-owned industrial loan companies, Q2 2015
Parent company ILC
Equit
ILC
Total Equity ILC y
Parent Total Commercia Stat equity
equity capital assets as capita RO
company assets ROA ROE lly owned e as % of ROE
capital to total % of its l to A
(billio (%) (%) ILC its (%)
(billion assets parent's total (%)
ns) parent's
s) (%) assets assets
equity
(%)
BMW Bank
BMW 183.4 42.9 23.4 2.0 8.5 of North UT 5.4 3.0 13.1 1.5 12.1
America
Eaglemark
Harley-
10.6 3.0 28.6 2.8 9.9 Savings NV 0.6 0.2 10.4 7.6 59.6
Davidson
Bank
EnerBank
CMS Energy 19.2 3.9 20.0 0.3 1.7 UT 5.5 3.1 11.2 2.7 24.7
USA
First
Fry's
n.a. n.a. n.a. n.a. n.a. Electronic UT n.a. n.a. 68.5 5.2 6.7
Electronics
Bank
GE Capital
General
610.9 118.3 19.4 -0.2 -1.1 Financial UT 3.7 3.1 16.0 -1.8 -11.3
Electric
Inc.
The Pitney
Pitney Bowes 6.3 0.2 3.1 2.4 79.3 Bowes Bank UT 11.9 47.0 12.1 9.7 79.1
Inc.
Target Corp. 40.4 13.9 34.5 1.9 5.4 Target Bank UT 0.2 0.1 14.7 18.0 173.4
Toyota
Financial
Toyota 400.3 148.2 37.0 1.3 3.6 NV 0.2 0.1 18.7 1.9 10.6
Savings
Bank
Transportati
Flying J n.a. n.a. n.a. n.a. n.a. on Alliance UT n.a. n.a. 13.9 1.1 8.1
Bank Inc.
All FDIC-insured institutions 11.46 0.99 8.84
Total assets of U.S. nonfinancial corporate business (Q2 2012): $31 trillion.
Total net worth of U.S. nonfinancial corporate business (Q2 2012): $17 trillion.
Sources: “Flow of Funds,” Federal Reserve, FDIC, Bloomberg and Bankscope.

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