America on a ticking mine
During all the years of testing, most US banks received a rating of "satisfactory" and then with great stretch. Some banks had to retake the exam. The examiners are financial regulators, primarily the US Federal Reserve. Examined are backbone banks, about which they say too big to fail. It is understood that the size and number of bonds of these banks are so large that their bankruptcy will have disastrous consequences for the economy as a whole.
Table. 1.
Assets of the largest US banks (on 15 September 2014 of the year)
Banks
Total assets
JP Morgan Chase
2.527,00
Bank of America
2.123,61
Wells Fargo
1.636,86
Citigroup
1.882,85
Goldman Sachs
868,93
Morgan Stanley
814,51
As can be seen from the table. 1, total assets of the “big six” of American banks as of 30 in September, 2014 were equal to 9,85 trillion. dollars. The total assets of the entire banking system at that time amounted to 15,35 trillion. That is, six banks account for almost 2 / 3 of all assets of the US banking system.
We can add on the total assets of the “big six” to the assets of the following six banks (trillion dollars): US Bancorp. (0,39), Bank of New York Mellon (0,39), PNC Financial Services Group (0,33), Capital One (0,30), HSBC North America Holdings (0,28), State Street Corporation (0,27). We get that the assets of the big dozen are equal to 11,81 trillion. dollars, or 76,8% of total assets of the entire US banking system. For banks located outside of Top-20, asset ratios are plummeting. For example, Synovus Financial Corporation, which holds a 50 line in the list of American banks, has assets equal to 26,5 billion dollars. That is, it is almost two orders of magnitude smaller than that of JP Morgan Chase.
By the way, at the beginning of 2014, the number of banks in the US was 6.981. It turns out that a huge number of banks is a trifle against the background of the “big six” and “big dozen”. Wall Street giants of the banking business consistently absorb small, medium and even relatively large banks every year. The Fed has been tracking the number of banks in the US since 1934. At the peak of growth in the mid 1980-s in the United States, there were over 18 thousand banks. Over the past three decades, more than 11 thousands of banks have died. In the 2013 year, their number for the first time dropped below the 7 thousand, which is less than in the 1934 year. The financial crisis of 2007-2009 played its role in clearing the US banking sector, when most banks with assets of less than 100 million left the market.
Financial regulators are only interested in the largest US banks. Stress testing every year pass 20-30 banks. The main benchmark for obtaining a positive assessment on the exam - capital adequacy ratio. The bank must have its own capital, and in a liquid form, in order in case of an emergency to be able to cover its obligations (obligations to customers who have opened deposits, other creditor banks, etc.). Banks, unlike companies in other sectors of the economy, are allowed to work with incomplete coverage of their obligations. And the secret of their stability lies in the fact that at critical moments, the central bank, the lender of last resort, and the state that provides loans to a sinking bank or increases the bank’s own capital, rush to save the banks. During the financial crisis, 2007-2009's. According to various estimates, the US banking system was pumped from 1 to 2 trillions of budget money. Despite such generous injections, all could not be saved. The largest loss of that time is the banking giant Lehman Brothers. By the way, on the eve of the financial crisis, some of the leading Wall Street banks (Citigroup, Morgan Stanley, and others) had a capital adequacy ratio of around 4%.
And what about this indicator after the crisis? Here are the results of stress testing for 2014 year of the "big six" US banks (%): Wells Fargo - 8,2; Citigroup - 7,2; Goldman Sachs - 6,9; JP Morgan Chase - 6,3; Morgan Stanley - 6,1; Bank of America - 5,9.
In the 2015 year, there were no radical changes from last year. The capital adequacy assessment for JP Morgan Chase was 6,5%, for Goldman Sachs - 6,3%, for Morgan Stanley - 6,2%, etc. Of the major banks in the top ten, Bank of New York Mellon had the best indicator - 12,6%. In general, the value of this indicator in the US banking system, according to expert estimates, is at the level of 5%. This level is considered the minimum acceptable for banks undergoing testing. That is, the situation with the stability of American banks is far from satisfactory.
In Europe, banks are also tested, but the requirements for the examinees are stricter there than in America. Some European banks on the background of the American financial organizations look just excellent students. For example, at Deutsche Bank, the capital adequacy ratio is 34,7%.
The US Federal Reserve does not hide the fact that four leading Wall Street banks in 2015 have passed the exam with great difficulty. These are Goldman Sachs, JP Morgan Chase, Morgan Stanley and Citigroup Inc. These banks were exposed to the conditions and restrictions on the implementation of the submitted financial and investment plans. The main limitation is the payment of dividends to shareholders. In addition, troubled banks are being restricted to repurchase their shares (such an operation, as we know, is a way to increase the market capitalization of a bank).
The top managers of Citigroup are pleased even with a conditional satisfactory assessment, since the bank had completely failed the exam twice, which had a bad effect on its rating and market capitalization, while dividend payments were postponed to a later date.
This year, two American divisions of European banks, Deutsche Bank AG and Banco Santander SA, participated in the testing of the Fed, and both received a “deuce”. Some experts call these “twos” a biased assessment, a peculiar form of bank protectionism. Plans to direct their American divisions to the annual FED exam were such European banks as Credit Suisse, Barclays and UBS, but the failure of Europeans in the final exam made them think.
Wall Street banks today are paying for the lack of control that existed in America’s financial sector from the beginning of the 1980s to the 2007-2009 crisis. When R. Reagan began the process of "deregulation" of the banking sector. In particular, restrictions on interest rates on deposit operations of banks began to be lifted. An important milestone was the 1999 year, when the Glass-Stigoll law was actually repealed - one of the first banking laws passed under President F. Roosevelt in the 1933 year. He introduced a rigid division of banks into commercial and investment, which allowed to restrain speculations of bankers in financial markets, which put at risk the loss of customer funds. The last major act of “deregulation” of banking activity took place under Bush Jr. In 2004, the US Securities and Exchange Commission allowed investment banks to lend securities purchase transactions without restriction (this led to the 1929 exchange crash of the year). Banks did not fail to take advantage of this right by starting the pumping up of a “bubble” in the market of securities secured by mortgage loans.
Today, Wall Street banks are between the hammer and the anvil. On the one hand, shareholders are demanding payment of generous dividends and an increase in the market capitalization of banks, that is, stock prices, and senior bank managers are unhappy that after the crisis, bonuses have been severely curtailed. On the other hand, financial regulators are trying to restrain the greedy aspirations of shareholders and managers. The memory of the financial crisis 2007-2009. not yet eroded from the minds of Americans. Regulators give very specific recommendations. So, according to the results of last year's exam, Morgan Stanley received insistent advice to increase its own capital by 13,66 billion dollars, Goldman Sachs - by 9,46 billion dollars, and by JP Morgan Chase - 8,38 billion dollars.
The US banking system is experiencing strong internal stresses. The results of stress testing banks show that America lives in a time bomb called the US banking system. And sooner or later this mine will explode. According to the former chief economist of the IMF, Simon Johnson, the low level of banks' equity capital combined with the slowness of financial regulators created a serious threat to the US economy. Today, the situation in the American economy, says Simon Johnson, recalls the events that led to the financial crisis: “We have already seen this film, and it ended badly. Next time we can see an even more creepy thriller. ”
- Valentin Katasonov
- http://www.fondsk.ru/news/2015/05/19/amerika-na-bankovskoj-mine-zamedlennogo-dejstvija-33431.html
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