Too Big to Fail Becomes Too Big to Flail
If a rising tide lifts all boats, then the country’s biggest banks are riding high in their luxury yachts.
While inflation was an economic thorn, 2024 was a pretty good year for the U.S. economy. When final gross domestic product numbers are in, they will likely show the United States posted the fastest growth of any advanced economy for the second year in a row. If the performance of the big banks is any indication, it’s a lock.
JP Morgan Chase took in $14 billion in the final quarter of 2024 and saw its investment banking revenue increase by nearly 50%.
Goldman Sachs reported a fourth-quarter earnings jump of 105% to $4.1 billion with full-year profits up 68% to $14,2 billion
Likewise Wells Fargo’s fourth-quarter earnings topped $5 billion, up from $3.45 billion a year earlier.
The question is, “Is what’s good for the banks, good for consumers?”
The answer is, “Sometimes.”
When bankers are feeling confident about the economy and the bottom line and are flush with cash, that is usually good news for consumers looking for a loan to finance a new business or buy a house.
Conversely, when banks are over-leveraged or in financial straits it can be very bad for consumers. After all, banks are where our money is. It is how most Americans navigate the daily routine of living either with cash, checks, credit or debit cards. And when the banking system is threatened, as it was during the Great Recession when some of the nation’s most well-known financial institutions failed, it can be dire for consumers.
In the case of the Great Recession and its aftermath, the federal government stepped in to prop up banks under the idea of “too big to fail.” That meant while banks and other financial institutions are private entities, the potential impact from the failure of a major financial services firm had the potential to be catastrophic not only for shareholders and bank officials, but for depositors and creditors as well.
Still, it is hard to feel a lot of sympathy for big banks. The huge profits posted by some major banks don’t usually trickle down to individual customers. And while the Federal Deposit Insurance Corp. offers a level of protection for depositors, it doesn’t completely mitigate the risk of bank failures.
With the ongoing consolidation in the financial services sector, however, we seem to have moved beyond the idea of “too big to fail” and entered an era of “too big to flail.” Banks have become so large – and financial regulations that require them to be able to weather severe financial downturns – have taken the edge off the risk of cascading bank failures. And with new possibilities in cryptocurrencies and artificial intelligence, the future looks bright for the banking industry.
Whether or not the consolidation of financial services firms is ultimately a good thing for the economy is still up in the air. But so far it appears to be a pretty good thing for the banks.
