Premium
Increased Concentration in Banking: Megabanks and Their Implications for Deposit Insurance
Author(s) -
Jones Kenneth D.,
Nguyen Chau
Publication year - 2005
Publication title -
financial markets, institutions and instruments
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 23
eISSN - 1468-0416
pISSN - 0963-8008
DOI - 10.1111/j.0963-8008.2005.00079.x
Subject(s) - deposit insurance , consolidation (business) , business , banking industry , corporation , government (linguistics) , finance , financial system , insurance industry , actuarial science , linguistics , philosophy
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.