You are here:HomeNews CenterInsurance News2009Now We Have Just Three 'Superbanks'

Now We Have Just Three 'Superbanks'

One of the issues that will be debated when Congress considers financial regulatory reforms in April will be the question of whether "bigger is better."...
January 22, 2009

One of the issues that will be debated when Congress considers financial regulatory reforms in April will be the question of whether "bigger is better." The focus will be on banks, but there are implications for insurance. Several of the nation's biggest banks have failed or been absorbed by healthier institutions, leaving three giant "superbanks" with an unprecedented concentration of market power: Bank of America, JPMorgan Chase and Wells Fargo.

Is this the direction we need to go? Under former Treasury Secretary Henry Paulson, who administered the first half of the federal rescue package known as TARP, his bias for the big was apparent. We saw a predisposition to use federal funds not to shore up smaller and midsize institutions, so much as to encourage larger firms to buy up smaller firms. For example, Treasury turned down a request from National City for assistance, then turned right around and gave PNC Bank, which was not distressed, $9 billion to acquire National City.

Individual investors are routinely advised to diversify in order to minimize the risk that losses in any one sector could wipe out their entire portfolio. This is sound advice. Such diversification is also a sound basis for structuring the sectors of the financial services industry. The banking, securities and capital markets sectors are now highly concentrated and the losses they experience spread quickly. In contrast, the insurance sector, being broadly diversified, remains on a firm footing.

Some have suggested that there are too many insurance companies (and agents), and that our industry should be collapsed into a handful of big carriers. PIA disagrees. The insurance sector, with 3,905 insurance companies prudently regulated by the states, has remained stable during the financial crisis while the "modernized" and "efficient" banking, securities and capital markets sectors supervised by the feds went into the tank, requiring billions in cash infusions to prevent the entire system from collapsing. The insurance industry's broad participation in the free enterprise system, with open competition in a free marketplace, protected our industry.

Just 3 'Superbanks' Now Dominate the Industry (MSNBC 1/6/09)