The friendly neighborhood bank is becoming rare and is being replaced by megabanks. America’s three largest banks, JPMorgan Chase, Bank of America, and Wells Fargo, have seen a 180 percent increase in deposits during the past decade, for a total of over 2.4 trillion. See the chart below:
Thanks to technology and online banking, consumers no longer open accounts at a convenient bank “down the block.” With online banking and online deposits, there are few reasons to physically visit a bank and stand in line. When it comes to choosing a bank, people are opting for a well-known name.
The top banks rake in the majority of consumer deposits, which gives them the money to provide cheap loans, while at the same time keeping interest rates low. Small banks are progressively being left out in the cold. Before the 1990s, regulations insured that consumer deposits were spread across thousands of different banks. In 1994, the government allowed national banks to hold deposits coast to coast. By 1995, the three major banks were holding 5 percent of all bank deposits. That was the beginning of the mega-bloated superbanks we have today.
Most of the deposits into these banks are into checking and savings accounts. These accounts tend to have greater longevity as depositors keep these accounts for years. At this time, the Big Three are continuing to open branches across the US, making the future of small, hometown banks increasingly more insecure. While smaller banks are still struggling to recover from the 2008 crisis, the Big Three are steadily gaining influence and power. All but forgotten, is the power of big banks and the damage of 2008.
The government is monitoring big banks that could affect global stability. JPMorgan Chase, with over $2.5 trillion in assets, tops that scrutiny list. Bank of America, Wells Fargo, and Deutsche Bank make up the second tier.
Big Banks are not just a problem in the US. China’s four largest banks have tripled their assets since the 2008 crisis. In the event of another financial crisis, these large banks will have far more assets than they did in 2008.
One of the reasons megabanks are bloating is that consumers are being influenced not to use cash anymore. Debit and credit cards give banks access to personal information even our direct family don’t have. Whenever you purchase something online, your personal information is stored. Amazon has a one-click buying option. You don’t even have to enter your information. They already have it, thank you very much, so just click on the “buy” button. Will consumers continue to give up privacy for convenience?
If we reach the level of a cashless society, we will be giving control of our finances to the banks. Unless we physically hold that dollar bill, the bank can go ahead and loan out our deposit thanks to fractional-reserve banking. Without tangibility in money, banks will truly hold all the power as the solvency of the bank shapes our future. With a cashless society, central banks will have a much more seamless transition to negative interest rates. Also, banks will have much easier time pushing more questionable fees.
Does a cashless world seem like a bad sci-fi novel? Harvard economist Kenneth Rogoff and Willem Buiter of Citigroup are laying the groundwork for financial totalitarianism, and other then zerohedge the mainstream financial media could care less.
The freedom to hold cash and conduct a legal transaction is one of the last freedoms we can enjoy.