“What it means” is a partial story to support an apparent particular political viewpoint that “big banks are bad”. In other words, because of the data that it omits, it’s a kind of lie.
Yes, clearly, many formerly independent banks have been acquired by larger banks and have become, as noted “mega banks”. This kind of merger and acquisition activity happens all the time in nearly all industries. The omitted data? Independent banking in the USA is alive and well and flourishing quite nicely, thank you. But you wouldn’t know that from this chart. @LuckyGuy and @elbanditoroso have alluded to this.
Anyone can google “independent banks in the usa” and find the same links I did. The writer of this piece, had it wanted to (because I see no authorship listed, which is another type of omission that causes me to look askance at it) could have done a “compare and contrast” to illustrate the point. But the writer chose not to confuse people with the facts, only to make a scary Mega Bank chart. It would have been interesting to show “assets under management by US banks” on a column graph, and maybe the data are available publicly somewhere, but the writer omitted that, too.
One economic fact of life in our modern world is that there is a necessary – vital, even – place for banks that are so well-capitalized. Modern development projects (I work on “power plants”, but you could just as easily substitute “oil and gas field development”, “factories”, and even “high-rise apartment buildings” and “farms” in some cases) require extraordinary amounts of capital, on the order of billions of dollars, to be managed and spent over the lifetime of the development project.
A lot of people with no exposure to these kinds of projects might laugh and say, “Oh, I can spend that money in a heartbeat!” But the fact is that the volume of invoicing and remittance communication alone (to say nothing of the cash transactions behind them) is overwhelming. The First National Bank of Podunk couldn’t even handle opening and responding to the mail alone, aside from the fact that they just haven’t got the reserves to be able to take the risk – because there is always risk! – to finance a $2 billion project to be built for a Vietnamese owner on orders from a European company operating in Southeast Asia and erected by a contractor from Japan using subcontractors from all over SE Asia and vendors from all around the world sending goods by ocean freight over a period of several years. Each transaction has to be managed. Every. Single. One.
Because you don’t just “spend money”. All of the invoices have to be reviewed, verified and approved and accounted for. And of course, you need to have the cash, and you need to have enough business aside from this one project that its potential failure – or even simple delay – won’t wipe out your entire bank. And then, of course, you need to be able to collect the cash payments from the owner of the development, meaning that everything has to be re-proven and re-billed to them in a manner that they will agree to pay.
Many nations, China, for one, overtly and explicitly nationalize the institutions that finance these kinds of projects. The problem there is that the control is prima facie political, meaning that it is only answerable to its political masters and their conscience. There is no open reporting, no public accountability whatsoever, and truly massive potential for routine corruption. Just watch the stories that are going to come out of China when their bubble finally bursts. It may even be later this year.
This is not to say that I sign on to every deal that the US-based banks make, nor do I support our government’s bailouts or the means that were used to accomplish those. All I’m saying is that these are “public” institutions with normal, transparent requirements and reporting; they are not “the only game in town” – and it is necessary for us all (not just “Americans”) that they exist in some way.
