"What about moral hazard?"
--Bretton James (Wall Street: Money Never Sleeps)
Interesting data presented by Zerohedge on the changing structure of the US banking industry. The industry is getting more concentrated.
Since the mid 1980s, the number of banks has fallen by about 60% while total deposits have tripled. Using the numbers below, I estimate that the average 1985 bank had almost $150 million on deposits while the average bank today has about $1.4 billion in deposits--an 8 fold increase in concentration of deposits.
Another measure of concentration, one the ZH does not include, is the market share controlled by the largest banks. A common metric in this regard is known as the CR4. The CR (concentration ratio) 4 measures the fraction of the total market going to the four largest operators.
Reliable data in this regard are not at my fingertips, but this analysis reports that the CR4 of total bank industry assets increased from 25% in the late 1990s to 68% by the end of 2003. That's a huge increase but actually seems pretty accurate due to the buyouts and bailouts of the period.
Plus, it is hard to imagine that bank industry CR4 has gone anywhere but up since then.
The I-O (industrial organization) economics rule of thumb is that industries with CR4's north of 60% are more likely to be structured in ways that impair competition. As competition is impaired, the franchises of imcumbents are protected. Large is favored over small. Entrepreneurial entry is discouraged. Pressure for productivity improvement declines. Consumers are worse off.
ZH does offer some sense of today's large bank dominance by reporting the fraction of total derivative exposure held by the top four banks:
The four largest banks carry nearly all of the $200+ trillion derivative exposure out there. Derivatives are a form of leverage that creates outsized profits during good times but hastens collapse during bad times.
Remember that during the Next Time Down, when the bigger-than-ever banks once again show up hat in hand for a bigger-than-ever bailout.