Although the phrase ‘Too Big to Fail’ was first coined by Congressman McKinney in 1984, it didn’t become a household phrase until 2007 with the bursting of the U.S. housing bubble. The idea that there were banks that were so large and internationally interconnected that they could never fail was supposed to be a sure thing, but in reality was not.
During the early to mid-2000’s banks wanted to help people get into homes and began offering low mortgage rates and lax application rules. People got into their homes, but once the bubble hit its peak and their mortgages spiked they couldn’t afford the payments. And these large multinationals like IndyMac Bancorp, Washington Mutual, and Lehman Brothers who had bought these subprime mortgages suddenly couldn’t afford to be in business anymore and began claiming billions in bankruptcy affecting not only the U.S. financial markets, but global markets as well. Since then the big banks who survived have been working to reclaim their financial and professional reputations.
Things are on the upswing as multinationals Wells Fargo and JP Morgan Chase showed quarterly increases from last year. Wells Fargo was up from $4.1 billion in 2011, to $4.9 billion in 2012. JP Morgan Chase also looked good as they went from $4.3 billion in 2011, to $5.7 billion in 2012. Those who are learning to adapt and change are surviving like when Goldman Sachs decided to change its status and be more of a commercial bank they saw financial increases from $3.59 billion a year ago, to $8.35 billion this year. However, even with the upswing in a few banks, there is a sign of struggle as the reports show there were 160,000 layoffs since the beginning of last year and news has shown that the large U.S. and international banks are struggling with investor fears and credit default insurance which is more than 20 times what it was in 2007.
Because of this continued progressive struggle, many banks are learning to rework their goals, and communicate changes that will enhance their financial standing and assure their shareholders and customers. For instance, Aozora Bank President Brian F. Prince has revealed his plan for public fund repayments as well as ways the bank is planning on strengthening themselves through networking, consulting, and diversifying their human resources. Citi Bank is tapping into the global technology movement and just opened its first Smart Banking in the Philippines, they are also exploring ways to help get the longer term unemployed back to work, and even offer unique ventures like their entrepreneurial education in Romania.
Overall, these large multinational banks are moving forward and doing what they need to in order to be stable, and productive. It seems like they are learning from the past, and looking forward to the future.