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TBTF is a four letter word

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March 25, 2010 – Comments (0) | RELATED TICKERS: BAC , C , JPM

When I was reading Morgan's article about Greenspan the other day, I got to this part:

 

4. On "too big to fail":

"Federal Reserve research had been unable to find economies of scale in banking beyond a modest-sized institution."

Hear that, JPMorgan Chase (NYSE: JPM) CEO Jamie Dimon? Now quit acting like civilization will be forced back into hunting and gathering if four banks don't control the economy.

 

and I said... "Wait, what?" then "Really?" then "Hmmmmm..."

So I got out my deerstalker cap and my pipe and I started investigating. What I found was pretty interesting. There actually has been a fairly sizeable body of work suggesting that bank mergers beyond a certain size don't increase banking efficiency... and, in fact, they might actually have diseconomies of scale beyond a certain point.

The result of my digging is this article on Fool.com today.

For anyone that would like to check out the source docs I used, here's a link to the Fed research paper and here's a link to the speech on the BoA merger.

Matt

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