Wall Street’s decision to forget 2008 has an almost dramatic quality. It is difficult to recall the fear that almost brought down the entire system seventeen years ago when you walk past the JPMorgan Chase tower at 270 Park Avenue on a weekday morning. The new tower was constructed on the foundation of the old one. The situation is no longer in the news. In political discourse, the expression “too big to fail” has becoming less common. However, if you take the time to look at the math, it has only gotten worse.
The biggest American banks have not shrunk in size since the Dodd-Frank Act of 2010. They’ve grown bigger. The assets of JPMorgan Chase alone currently exceed $4 trillion, which is more than the GDP of the majority of nations. Approximately $11 trillion in assets are held by the top four U.S. banks together, a level of concentration that was politically unimaginable in 2009. In general, Dodd-Frank promised that no institution would ever again be too significant to let fail. In actuality, it is now far more difficult to unwind the institutions that Congress was purportedly attempting to restrict than it was prior to the start of the reforms.
| Information | Details |
|---|---|
| Concept | “Too Big to Fail” (TBTF) |
| Origin Crisis | 2008 Global Financial Crisis |
| Key Regulation Passed | Dodd-Frank Wall Street Reform Act (2010) |
| Regulator Created | Financial Stability Oversight Council |
| Largest US Banks Today | JPMorgan Chase, Bank of America, Citigroup, Wells Fargo |
| JPMorgan Total Assets | Over $4 trillion |
| Top 4 US Bank Assets Combined | Roughly $11 trillion |
| Global Designation | G-SIBs (Global Systemically Important Banks) |
| Notable Recent Failure | Credit Suisse takeover by UBS (2023) |
| US Bank Failures 2023 | Silicon Valley Bank, Signature Bank, First Republic |
| Implicit Subsidy Estimates | Tens of billions annually in lower funding costs |
| Core Risk Driver | Interconnectedness, not just size |
| Capital Rule Framework | Basel III Endgame |
| Moral Hazard | Bailout expectation drives risk-taking |
| Public Sentiment | Skeptical, broadly distrustful |
The causes aren’t wholly evil. A portion of the consolidation was unintentional. JPMorgan took over Bear Stearns and Washington Mutual after they failed. Wells Fargo took over Wachovia after it failed. Bank of America intervened when Merrill Lynch faltered in 2008. At the time, each of the rescues was presented as the right decision. Each of them also created an institution that, in the modern era, would be far more challenging to save if it faltered. There is a perception that the solution to “too big to fail,” at least temporarily, was to simply increase the size of a smaller number of banks.
The element that frequently appears in research papers but is largely disregarded outside of academic circles is the economic reasoning that follows. A bank can borrow money at a lower cost than it otherwise would when markets believe it cannot fail. This implicit subsidy is estimated to be tens of billions of dollars annually across the biggest U.S. institutions by studies from the IMF and other central banks. In actuality, it is a silent transfer from taxpayers to shareholders, and it promotes precisely the kind of risk-taking that the post-crisis reforms were meant to deter. It is difficult to avoid feeling as though the regulators won the battle but lost the war when this scenario persists year after year.
If anyone needed a reminder, the banking crisis of 2023 was a helpful one. Within a few weeks, Silicon Valley Bank, Signature, and First Republic all collapsed. Over the course of one weekend, Swiss regulators essentially drove Credit Suisse, a globally significant bank, into the arms of UBS. These weren’t any of the very big American companies. The institutions were thought to be small enough to be resolved through standard methods, making them the next layer below. However, in almost all of the cases, the response included extraordinary guarantees, emergency action, and a discernible degree of improvisation. What does anyone genuinely believe a JPMorgan or Citigroup wind-down would entail if the smaller errors necessitated that degree of intervention?
Regulators have not been inactive. The Basel III Endgame regulations, which are gradually being applied in all significant countries, significantly increase the capital requirements for the biggest banks. Resolution planning has improved, and stress assessments are now more stringent than they were in 2009. However, the banks have vigorously opposed the most stringent forms of the proposed regulations, and there doesn’t seem to be much political desire for conflict. In Washington, there is a tacit agreement that the next crisis, when it arises, will likely be handled similarly to the previous one. Through adaptability, emergency lending, and the tacit knowledge that some institutions just cannot be permitted to vanish.
Size is important, but it’s not exactly what distinguishes the contemporary “too big to fail” concept. It’s connectivity. A single trillion-dollar bank has global custodian links, payment system functions, counterparty exposures, and derivatives holdings that affect almost all other large financial institutions worldwide. Fundamentally, the 2008 crisis was a crisis of interconnection. Because of who it owed money to and who depended on it for short-term liquidity, Lehman’s fall was significant, not because of its size. It hasn’t been untangled. It has, if anything, become denser.
The political silence around all of this is difficult to ignore. The public’s fury over Wall Street, which peaked in 2009, has faded into other disputes. For the past fifteen years, the banks have worked to improve their reputation by sponsoring stadiums, funding community initiatives, and generally attempting to appear like organizations that have learnt their lesson. Perhaps they did. Perhaps the system is actually safer now. The biggest American banks are now so vital to the modern economy that no government, regardless of party, would allow them to fail. This is the structural reality that the numbers consistently point to. Depending on your interpretation of the term, that may or may not be considered progress.