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
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.

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?

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

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