Trillion-Dollar Banks Could Get Bigger Under Financial Overhaul Law

WASHINGTON — The nation’s four biggest banks can grow even bigger, with the potential to add at least another trillion dollars onto their balance sheets before they even reach the limits imposed by the Obama administration, according to an administration study released Tuesday.

Dodd-Frank, the 2010 law overhauling financial regulations, calls for regulators to impose a ten percent cap on individual financial firms’ liabilities relative to the entire system. The rule is intended to prevent lenders from becoming so large that their collapse would threaten the health of the broader financial system.

Firms that hit that cap are not supposed to be able to grow through mergers or acquisitions, and banks that wish to get that big by gobbling up a competitor shouldn’t be allowed to.

But the report, issued by the council of regulators that is supposed to keep watch for breakdowns in the financial system, calculates the formula in such a way that it leaves the largest U.S. lenders with plenty of room to grow. For example, JPMorgan Chase, the nation’s second-biggest bank by assets, can merge with U.S. Bancorp, the 10th-biggest lender, and still fall comfortably under the limit.

“I said the banks won,” said Simon Johnson, a former chief economist at the International Monetary Fund who now teaches at the M.I.T. Sloan School of Management and is a HuffPost contributing business editor. “It just tells you what the Treasury wants, and what they’re telling you is they’re going to cook it to let these banks expand.”

Treasury Secretary Timothy Geithner heads the Financial Stability Oversight Council, which produced the study and accompanying recommendations. They’re intended to guide regulators as they craft the rules that will attempt to restrain the growing concentration in the nation’s financial system.

The big four banks, which collectively hold about $7.7 trillion in assets, or just about half of the entire banking system, originate and service roughly three out of every five home mortgages; hold about 35 percent of all deposits; and control about 44 percent of all credit card purchases, according to the council.

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