U.S. Banks Actually Bigger Than Entire U.S. Economy By One Measure: Report

02/20/2013 11:53 am ET | Updated Feb 20, 2013
  • Mark Gongloff Managing Editor, Business and Tech, The Huffington Post

Perhaps you know about U.S. banks being too big to fail, or to jail, or to take to trial. But quite literally, you may not know the half of it.

The very biggest U.S. banks -- which have grown much bigger than they were before the financial crisis -- look even bigger, almost doubling in size when you use international accounting standards instead of slacker U.S. accounting standards to measure their assets, Bloomberg estimates. By that measure, the size of the banks measures quite closely to that of the entire U.S. GDP.

The combined assets of just JPMorgan Chase, Bank of America, Citigroup and Wells Fargo would be 93 percent of U.S. gross domestic product under these tougher standards, or $14.7 trillion, according to Bloomberg's measure. (That's compared to $7.8 trillion worth of assets under U.S. accounting standards, by The Huffington Post's count). Take into account the entire U.S. banking system's assets, and suddenly that number jumps to 170 percent of GDP under international accounting standards.

What accounts for the difference between U.S. and international accounting standards? Maybe most importantly, international standards count more of a bank's derivatives contracts against them, instead of giving banks credit for derivatives contracts that cancel each other out. U.S. standards let banks ignore about $4 trillion in derivatives exposure, Bloomberg notes.

International standards also assume banks will be on the hook for many of the debts they warehouse off their balance sheets in special entities. This trims the size of bank assets by another $3 trillion or so, according to Bloomberg. The crisis revealed that there was really no hiding from these assets when times got tough. And yet banks still get to pretend they don't really exist, at least in the U.S.

Time for a caveat break! Measuring bank assets is often more art than science, particularly when it comes to hazy stuff like credit derivatives. Banks feel it is deeply unfair to count all of their derivatives contracts against them. Under normal circumstances, many of these contracts will cancel each other out and make the banks' net exposure much lower.

And you run into a bit of an apple-orange problem when you start comparing bank assets, which theoretically just sit there accumulating losses or profits, to GDP, which is a measure of the flows of money through the economy.

But the broader point of the Bloomberg piece is still relevant, however much you choose to freak out about the specific numbers: Many of the risks the banks face are still obscured from investors and regulators. The piece harkens back to the recent Atlantic story by Frank Partnoy and Jesse Eisinger that dove into Wells Fargo's balance sheet to demonstrate just that.

It highlights how, more than five years after the crisis began, banks are still perilously big and making complex bets whose risks are often hidden from view. We're still arguing about what to do about these problems. But we still don't even know how big the problems are.

11 Professions Less Trusted Than Bankers

CONVERSATIONS