Too big to fail?

Recently, the SEC restricted short selling on a list of 19 stocks because of turmoil following the Fannie-Freddie worries last week. In effect, the SEC was signaling that these institutions are too big to fail because a number of these companies were not subject to rumors of massive losses while a number of institutions not on this list were. Obviously, then, this begs the question as to what financial institutions are too big to fail.

My subjective opinion is based on asset size. Here is a list of the top banks by assets from infoplease.

United States’ Largest Banks
(in millions of U.S. dollars)
Rank	Name (city, state)	Consolidated
		assets
1	Citigroup (New York, N.Y.)	$2,199,848
2	Bank of America Corp. (Charlotte, N.C.)	1,743,478
3	J. P. Morgan Chase & Company (Columbus, Ohio)	1,642,862
4	Wachovia Corp. (Charlotte, N.C.)	808,575
5	Taunus Corp. (New York, N.Y.)	750,323
6	Wells Fargo & Company (San Fransisco, Calif.)	595,221
7	HSBC North America Inc. (Prospect Heights, Ill.)	493,010
8	U.S. Bancorp (Minneapolis, Minn.)	241,781
9	Bank of the New York Mellon Corp. (New York, N.Y.)	205,151
10	Suntrust, Inc. (Atlanta, Ga.)	178,986
11	Citizens Financial Group, Inc. (Providence, R.I.)	161,759
12	National City Bank (Cleveland, Ohio)	155,046
13	State Street Corp. (Boston, MA)	154,478
14	Capital One Financial Corp. (McLean, Va.)	150,608
15	Regions Financial Corp. (Birmingham, Ala.)	144,251
16	PNC Financial Services Group, Inc. (Pittsburg, Pa.)	140,026
17	BB&T Corp. (Winston-Salem, N.C.)	$136,417
18	TD Bank North, INC. (Portland, Maine)	118,171
19	Fifth Third Bankcorp (Cincinatti, Ohio)	111,396
20	Keycorp (Cleveland, Ohio)	101,596
21	Northern Trust Corp. (Chicago, Ill.)	77,480
22	Bancwest Corp. (Honolulu, Hawaii)	74,808
23	Harris Financial Corp. (Wilmington, Del.)	69,172
24	Comerica Incorporated (Dallas, Tex.)	67,167
25	M&T Bank Corp. (Buffalo, N.Y.)	66,085
26	Marshall & Ilsley Corp. (Milwaukee, Wis.)	63,432
27	BBVA USA Bancshares, Inc. (The Woodlands, Tex.)	59,953
28	Unionbancal Corporation (San Fransisco, Calif.)	57,933
29	Huntington Bancshares, Inc. (Columbus, Ohio)	55,985
30	Zions Bancorporation (Salt Lake City, Utah)	53,597
NOTE: As of May 30, 2008.
Source: Federal Reserve System, National Inform ation Center.

I have highlighted the first 9 banks with assets over $200 billion as banks I reckon the Feds would not allow to go under. Below that line, what the Feds would do is unclear. But certainly, banks with assets less than $100 billion are not going to be bailed out.

Some of these companies are subsidiaries of foreign banks, so the U.S> would not be the place to look for bailouts. These institutions include Taunus (part of Deutsche Bank), HSBC, BBVA, and TD Bank North (Part of Toronto-Dominion).

However, this list does not include investment banks like Lehman Brothers, Goldman Sachs, Morgan Stanley, and Merrill Lynch or Insurance companies like AIG, MetLife, Prudential and Berkshire Hathaway or other financial institutions like American Express and General Electric, all of which are to big to fail. Nor does it include Fannie Mae and Freddie Mac, which we have seen are definitely too big to fail.

Conclusion
So, who would I put on my list? I would at least put the 7 banks I mentioned with assets over $200 billion (not including Taunus or HSBC). I would add Freddie and Fannie, plus the major Investment Banks: Lehman Brothers, Goldman Sachs, Morgan Stanley, and Merrill Lynch. As far as other institutions go, AIG, MetLife, Prudential, Berkshire Hathaway, GE and AMEX would be on that list as well.

Obviously, most of these institutions are in no way imperiled, Berkshire Hathaway being the most obvious example. And there are lots of examples of institutions with over $200 billion in assets like The Hartford, which I have not put on the list. None of the brokerages like Schwab and T. Rowe Price are on this list. But, on the whole, this covers most of the institutions the Feds are interested in saving.

So, this is a backstop for 19 U.S. financial institutions to match the SEC’s list of 19. That’s my list.

What’s yours?

UPDATE: 1324 EDT
WaMu is not on this list because they are a savings and loan. But, they do have more than $300 billion in assets. So, for consistency sake, I’d have to add them. But I think Washington Mutual is the prime example of a financial institution which did NOT receive SEC help from short sellers, but that would need it more than the likes of Goldman.

WaMu really shows how unfair the list of 19 is. Regulation on the fly, in crisis is never pretty