J P Morgan Chase, Chase Bank America Wells Fargo, J P Morgan discussed on Masters in Business


J P Morgan. Chase Bank America Wells Fargo and much further down. It goes down to, you know, US Bank and. PNC and fifth third and other banks you might think of as regional, but really have you know? Subside run grown into integrate size right because J P Morgan. Chase is at its balance sheet is trillions of dollars Wells Fargo's above trillion dollars. So we're taking down on some order of magnitude smaller than that. But are still very very large banks, and they control about thirteen trillion dollars. Right. Thirteen of the sixteen trillion dollars and these deposits, that's an extraordinary concentration, especially given that the number of institutions we're talking about a couple dozen, right? This changes as banks balance sheets change in size at the margin. But we are seeing financial services dominated by a handful of institutions, and we have not seen that really ever before in our history, including the great merger era late nineteenth century where you saw trusts around sugar oil. Corn harvesting machines right and fill in the blank there. These this is the great trust era. Great consolidation era. But interestingly enough because of the structure of the US political economy banks were extremely decentralized by law each Bank for a very very long time, a Bank couldn't have more than one branch. And even after that was changed in the late nineteen twenties. They couldn't have branching across states, and that wasn't finally abolished where you would have a Bank doing business as its own institution across state lines until after nineteen eighty what about the repeal of Steagall, what did that contribute towards thanks bulking up. I'd say contributed a lot. So this is this is a point of some debate among economic historians. It's correlated right with banks bulking up in in in pretty breathtaking fashion. What some economic historians late. Well, that's correlated, but wasn't caused by this last egos, essentially unrelated to this size now, that's hard. Swallow, at least in the short run after around glass, Glass-Steagall final legislative demise. Because of course, city group become CitiGroup after acquisition city. It'd be the first mega back. And so, but then again, you know, a few years after that that was a pretty disastrous merger. They sold most of their insurance business because the synergies weren't present. And then what becomes really the shining example megabank J P Morgan Chase. And if we were list, all of the names of the banks acquired along the way. Hanover chemical. Absolutely. You know, the Bank for what was Daime diamonds Bank in Chicago. I nationals called and he I believe he was at Smith Barney before that he was a city. He was sandy Weill right hand man in designing the strategy mega-banking strategy. He loses in a power struggle goes to manage his Bank in Chicago comes back in JP, Morgan Chase's acquisition, which was essentially an employment contract acquisition. Jamie Namen become CEO and J P Morgan Chase with help from the federal government embarks on this strategy or just becoming as big as it can be. And so we are truly in an unprecedented era in terms of of banking consolidation. The United States so everybody used to talk about too big to fail. I liked to raise the question have these banks become too big to succeed are they even manageable? When you're running trillions of dollars in deposits can these things be managed and that'll segue, right? Into our discussion of Wells Fargo. Such a great question too big to manage too big to jail too. Succeed. And that the way that you phrased it to succeed is so fascinating because it calls into question the time horizon and the short and medium-term say that we're on on leading into a medium-term from the financial crisis management been good to be Jamie Dimon, right. That is that balance sheet is been mixed. Extremely right fortress diamond is just it's it's unknown assailants. They were very fortunate your financial historian. You'll appreciate this. Most people realize J P Morgan Chase had their own derivatives crisis. But they were let's call it lucky enough or smart enough to have it years before everybody else. So they cleaned up the balance sheet while there was still a bid to hit. When did everybody else? They had nowhere to go. Now. This is another occasion in financial history. That a lot of people don't recognize, and I think this is Tim Geithner's signal contribution to to finance in his career happened before he was secretary of the treasury, and that was in two thousand five thousand seven noting on a spectacular back office problem. Andrew trading. Right. So these are all bespoke derivatives rate, even even if they're not very fancy these pretty plain vanilla. But they all are bespoke because there's no there's no marketplace for them to train on its no exchange for them. And so you would think sophisticated folks in two thousand five we're not talking about one thousand nine hundred five range. So the IT revolution has already taken pretty sure route you'd have some sort of oracle based software system where traders with two headsets on, you know, talking to people released punching them into a computer that would clear it, and we'll be universally access, and you'd think that and you'd be wrong, right? What they were doing. Instead is on scraps of paper with a little golf pencils. Writing down the nature of the trade is. Oh, they were signing a doctor's a prescription handing it back to a runner who would take that piece of paper and put her in the stack. Right. And what Tim Geithner realized even though he had had no supervisory authority over these broker dealers. It's very important point realized that the back office back long was about nine months. Wow. Amazing..

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