The World’s 29 Too Big To Fail Banks
Here is the list of so-called global systemically important financial institutions by country (hat tip Barry Ritholtz).
Belgium: Dexia
China: Bank of China
France: Banque Populaire, BNP Paribas, Crédit Agricole, Société Générale
Germany: Commerzbank, Deutsche Bank
Italy: Unicredit
Japan: Mitsubishi, Mizuho, Sumitomo Mitsui
Netherlands: ING
Spain: Santander
Sweden: Nordea
Switzerland: Credit Suisse, UBS
UK: Barclays, HSBC, Lloyds, Royal Bank of Scotland
US: Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JP Morgan, Morgan Stanley, State Street, Wells Fargo
That’s 29 in total. European banks dominate the list and number seventeen in total. Four banks are domiciled in Asia while eight are from the US. If any of these financial institutions became distressed or failed in a disorderly way like Lehman Brothers, their mere size, complexity and interconnectedness would bring the financial system to its knees. The purpose of identifying these institutions then is to hold them to a different standard and therefore reduce contagion risk in the financial sector. Right now, the rules are that institutions will have to hold up to 3.5% extra capital to absorb losses. These requirements will be introduced along with the Basel III capital rules between the beginning of 2016 and year-end 2018.
Who’s missing in your view?
I have written a few posts on which banks are too big to fail, first in July 2008 before Lehman failed. I made the cut-off then at 200 billion in assets, which included 19 institutions, because at the time the FDIC simply didn’t have the funds to deal with a failure that large. I had asked “What if a large US regional bank goes to the wall?” and the answer was the FDIC could resolve it but would have run out of funds. That shows you how unprepared the US was for the crisis. When one of the 19, Lehman experienced a disorderly bankruptcy, all hell broke loose.
The European banks are where the action is today though. In February 2009 I did a partial list of banks that are too big to rescue for their national governments as well as one of the top 25 European banks by assets. A few of these banks aren’t on the sifi list. Here are the banks I think could be on the list but aren’t:
Commonwealth Bank, National Australia Bank, Westpac Banking Group (Australia)
Erste Bank (Austria)
KBC (Belgium)
Scotia Bank (forgot to add in my haste!), Royal Bank of Canada, Toronto-Dominion Bank, CIBC, Bank of Montreal (Canada)
China Construction Bank, ICBC (China)
Danske Bank (Denmark)
Intesa Sanpaolo (Italy)
BBVA, BSCH (Spain)
SEB, Swedbank, Handelsbanken (Sweden)
Also see: The largest European banks by assets, June 2010 (a rundown of the biggest banks in Europe a globally)
The Financial Stability Board’s report that led to these banks’ being identified is below.
The problem is concentration of banking. The four UK banks on the list covers nearly the entire sector by market share. Same for France and Australia, Sweden. Each of these countries has very concentrated banking systems.
Agree, that’s why I added those other countries’ banks. I also put Erste in there because we both know that they would be a handful for a country the size of Austria.
Yes and until we have serious banking reforms we are facing decades of problems.
I would also have a few questions marks over Australian banks as well.
They may even potentially be too big to save, with the assets of the four biggest banks in Australia (Commonwealth Bank, ANZ, National Australia Bank and Westpac) being over three times the national GDP.
Westpac by itself has assets of €650 Billion which is even larger than a few banks on your list.
The saving grace for these banks has been the fact that the Australian property market (which they all are heavily exposed to) has held up reasonably well over the last 5 – 7 years, though the Australian property market has been dropping slightly over the last 18 months…
If this trend continues, I imagine it won’t be long until the Australian banking system starts contributing it’s fair share of economic gloom to global finance.
I believe I have already included 3 of the 4 big Australian banks as ones to think about.
Where are your list of Canadian banks that are too big to fail?
I suggested the big four in the post (Doesn’t anybody read the whole thing? Someone just asked about Australia too.)
I just don’t understand the “too big to fail” mantra.
There are legal remedies both at the local and federal level for entities that become “insolvent”. Under normal circumstances the entity is placed into conservatorship, assets are sold, and losses are divided among the investors, according to their investment.
While these huge entities provide for some complex “interweaving” the same laws should apply.
“Too big to fail” was a term invented by investors and government officials who decided that the public should be placed into the investor category when it came to losses. Not for the good of the economy, but for political expediency.
I think you need to include Scotia bank as well, it is basically the same size as the other 4, and if any of those 5 Banks failed, it would cause problems in Canada for sure. Fortunately they are all well capitalized with more conservative regulations than most of the world, so they should be less likely to fail.
Yep. My bad. Forget to add in my haste. Will do so now. Cheers.
Read somewhere in the last year, that the Canadian banks had increasing levels of leverage and reckless lending bordering on sub prime levels. So I would not be so sure about Canadian banks not being an issue. The property bubble is hiding the naked investors right now. A fall back in property and you could see the Canadian banks collapsing just like the best in the US or Europe.