Increased Concentration in Banking: Megabanks and Their Implications for Deposit Insurance

42 Pages Posted: 29 Jan 2005

See all articles by Kenneth D. Jones

Kenneth D. Jones

State Street Corporation

Chau Nguyen

Federal Deposit Insurance Corporation

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Abstract

During the past two decades, the U.S. banking industry has experienced an unprecedented wave of consolidation, marked by a substantial decline in the number of insured depository institutions and the emergence of banking behemoths with assets totaling in the hundreds of billions of dollars. This unparalleled concentration of assets and deposits among a handful of "megabanks" has important implications for deposit insurance. Most importantly, the Federal Deposit Insurance Corporation (FDIC) now faces a situation in which the failure of even a single megabank could overwhelm the resources immediately available to the deposit insurance system and expose both the banking industry and the government (i.e., taxpayers) to huge potential liabilities. This article highlights the current structure of the banking industry, examines the threat that this structure poses to the deposit insurance funds, and suggests possible approaches for dealing with megabanks and the increasing concentration of insured deposits.

Suggested Citation

Jones, Kenneth D. and Nguyen, Chau, Increased Concentration in Banking: Megabanks and Their Implications for Deposit Insurance. Financial Markets, Institutions & Instruments, Vol. 14, No. 1, pp. 1-42, February 2005. Available at SSRN: https://ssrn.com/abstract=656127

Kenneth D. Jones (Contact Author)

State Street Corporation ( email )

1 Lincoln Street
Boston, MA 02111
United States
617-662-0370 (Phone)

Chau Nguyen

Federal Deposit Insurance Corporation ( email )

550 17th Street NW
Washington, DC 20429
United States

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