You would have to be sleeping under a rock for the past few years if you haven’t heard the term “Too big to fail”. This term became notoriously recognizable all over the country in 2008 and 2009 when the U.S. government decided to “bail out”, support, and protect the nation’s largest banks, ensuring that it was literally impossible for them to fail. Many economists agreed that the decision for the Fed and the U.S. government to back these large banks was a smart move to avoid a complete collapse of our financial system. And it is tough to argue with that point. However, the unforeseen consequence is that these banks now realize that they can’t fail under any circumstance. When a person or entity has a “too big to fail” attitude where there is no way to lose, they tend to make very bad decisions and take extreme risks (which is what got us into the financial mess in the first place).
So what do these same big 5 “too big to fail banks” look like today (four years later)? To give you some history, the nation’s 5 largest banks have actually tripled their market share since 1970, while during the same time frame, more than half of the small banks have disappeared.
Check out this great piece we found on www.facethefacts.org called “The Changing Landscape of Banking” – “In 2010 the five biggest banks (Wall Street) held more than half of all banking assets. The remaining 5,700 small banks owned just 16 percent”.