As of June 2023, 40% of all U.S. banking assets were in the hands of just three bank holding companies: JPMorgan Chase, Bank of America, and Citigroup. As of 2023, the ten largest United States banks own 70% of all U.S. bank assets, compared to 42% twenty years earlier.1
Private bank consolidation creates a cyclical pattern that ultimately forces further bank consolidation. The cycle begins with disproportionate political influence and market control, which creates a cascade effect of high-risk investment strategies, followed by Federal Reserve intervention, which slows the economy until it collapses on itself, whereupon further consolidation occurs. Down on the ground, the American people experience interest rate hikes, housing foreclosures, mass unemployment, “too-big-to-fail” taxpayer bailouts, rent hikes, inflation, banking deserts, distressed communities, forced predatory lending, and the continued erosion of the middle class.
This article is part of a series which explores how Alexander Hamilton’s original National Public Bank—the only bank based on U.S. Constitutional law—could offer us a more economically sound paradigm than the current model, where private banks rent out debt disguised as U.S. currency—and backed by a permanent foundation of National debt—which is then further leveraged until it becomes so heavy, the labor of the American people can no longer carry it, and for this, they must suffer.
A National Public Bank solves private bank consolidation because it doesn’t create debt, it only empowers labor, which creates value. There has never been any value created by debt; American labor has always been the only source of value creation, and when it is finally recognized as the gold standard for U.S. currency, there will be no such thing as economic downturns, inflation, debt, distressed communities, foreclosures, food or banking deserts, poverty, pollution, ecosystem collapse, or any of the other negative externalities propagated by the private banking model.
The 2007-2008 Financial Crisis clearly illustrates the risks of relying upon too-big-too-fail banks; the consequent costs to American taxpayers, homeowners, renters, employees, small business owners, and consumers are ongoing and severe. Between bailouts, foreclosures, middle income job loss, inflation, rent hikes, and further bank consolidation that removed community banking options for local small businesses and residents, every American paid extra to and for our privatized monetary system, in exchange for their further indebtedness.
At its core, Wall Street is nothing more than a gambling establishment, and if treated as such, would only be able to harm those who choose to gamble there. Through the conduit of federal government, however, Wall Street has been able to attach itself to the real economy, drain every possible ounce of labor value from the American people, and still leave trillions more in further debt obligations, that ensure large private banks will be fed by people’s labor for years to come.
Outsized Political Power
A lot of deregulation had to happen to create the 2007-2008 financial crisis. One thing to which all Americans can agree is that when politicians get together, nothing meaningful to average Americans is ever accomplished, so when something specific gets done, and done quickly, toward specific results that benefit specific parties, it would behoove ‘average Americans’ to—at the very least—take note.
In 1913, Congress officially privatized its Constitutionally mandated money powers. This opened the door for more Government Sponsored Enterprises (GSEs), most of them designed to launder privately created debt. GSEs like Fannie Mae borrow public debt to repurchase private debt that itself was created out of public debt; underneath the smoke and mirrors, federal government essentially opens a conduit through which Wall Street investors receive a steady income stream from the labor value of low- and middle-income American homebuyers, which is the only actual value created in this convoluted process.
Allegedly, money created ‘out of thin air’ by banks is ‘destroyed’ once it is paid back, leaving only the interest on the loan as the bank’s profit, but when GSEs repurchase the loans and bundle them up in large groups of mortgage-backed securities, investors receive the full value of this re-repurchase: they get the interest and the principal value. Imagine how much money started floating around the economy—where it was subsequently snatched up through various forms of economic rent, then passed off as customary inflation—but only after the following events occurred:
- The Gramm-Leach-Bliley Act of 1999 reattached commercial banks to their investment counterparts; this allowed the commercial arm of the bank to originate loans, so that once a GSE securitized them, the investment arm of the bank could bundle them up and sell them. Thus, investment vehicles could be manufactured almost entirely ‘in house.’
- Through the Commodity Futures Modernization Act of 2000, derivative gambling was not only legitimized, but exempt from all oversight, supervision, or reserve requirements. Derivatives were the inevitable outcome once commercial and investment banks were allowed to operate under the same roof; banks could now become a conduit through which homeowner’s mortgage payments flowed directly to investors. Large-scale facilitators, middlemen, intermediaries—this is where the easy money is—to own the means of economic connection between buyers and sellers, set up a paywall, and charge a toll for every transaction that occurs, rather than laboring to produce anything of real value.
- Through the Securities and Exchange Commission, reserve requirements for the top five banks were lifted; now these banks could leverage their money at ratios up to 40 to 1, which they used to ramp up the origination of home loans. Mis-rated mortgage-backed securities and collateralized debt obligations were selling like hotcakes, and because GSEs had at least some federal regulations attached, they were bogging down the supply chain. Now banks became the only valve built into this debt money conduit, and large private banks opened it all the way up. Banks attempted to cover their assets by creating unregulated Special Purpose Entities (SPEs)—“fenced organizations” stuffed with over-leveraged debt money—designed to originate unregulated loans to typically unqualified buyers; this private-label securitization (PLS) from nonbank entities accounted for almost $2 trillion in subprime lending from 2004 until the Crisis hit.2
- Meanwhile, the federal Office of the Comptroller of the Currency conveniently preempted states from regulating large national bank loan practices, so that large parent banks could position these unregulated nonbank entities near large housing markets, where they offered predatory adjustable-rate loans (with three-to-five year balloon payments attached) to unqualified first-time low-income home buyers. These Special Purpose Entities then passed the loans directly to the parent company to bundle into unregulated, unprotected derivative products, where they were given a AAA rating by a private, as-yet unregulated credit rating agency, then backed by a private insurance company (AIG) who was not required to set aside any reserves because derivatives were untouchable, thanks to the Commodity Futures Modernization Act. It is a natural fact that predators will cooperate when trying to take down larger prey, and though some predators misconstrue this as competition, rarely does the prey see it that way.
Finally, it was the Federal Reserve who automatically raised interest rates four percentage points in two years, to slow the unprecedented purchase of homes, apparently never bothering to investigate that $2 trillion—or 83%—of these loans were created by unregulated nonbank entities who were only offering adjustable-rate loans with three-to-five-year balloon payments to low and middle income first-time buyers. Once the housing balloon burst, it was the Fed and the government who dropped the rates to zero, then deliberately sold off these foreclosures to private investors at the lowest possible asking price, instead of acting to keep Americans in their homes; federal investigation found that private banks made no attempt to stave off the foreclosures, but in fact went out of their way to grab up these houses in a pattern that suggests that this was the plan all along.3
Reduced Market Competition
Because of the risks taken by several Wall Street Banks, some no longer exist; their assets were consolidated by the largest banks, who have experience dealing with the regulatory and capital investment requirements associated with living above the asset threshold. Reduced competition is typically followed by a marked reduction in A) innovation, B) the quality of products and services, and C) employee wages; prices are typically the only thing that go up.
The 2018 Economic Growth, Regulatory Relief and Consumer Protection Act is yet another example of the federal government doubling down on the concept that large private banks battling with each other somehow promotes our general welfare. Among other things, this legislation raised the asset threshold for banks from $50 billion to $250 billion, promising them no regulatory scrutiny if they wished to consolidate through mergers and acquisitions. The reasoning was likely to make sure the biggest banks did not assimilate everything in their path, but as we have seen in our U.S. Healthcare Services, even competing entities will cooperate to gouge the public on prices. The Financial Crisis also showed that large entities—Banks, Credit Rating Agencies, and Insurance Companies, for example—will team up to profit together from the fail-safe bet that people need shelter.
Middleweight banks are understandably careful not to exceed the regulatory threshold and enter the hostile environment of the heavyweight division; size is less a measure of quality or expertise, and more a measure of gluttony or avarice. The fear of being eaten alive has likely created both a financial and psychological barrier for medium-sized banks looking to level up.
Small business lending generally requires some form of local expertise to gauge risks specific to that community; for this reason, businesses find it extremely difficult to get a loan from banks outside their community. When all but the smallest banks consolidate, the focus has typically shifted away from loaning to small businesses; even when nonlocal lenders do decide to offer small business loans, their rates are typically exorbitant.
Consolidation has also adversely affected rural markets, causing many smaller banks to also consolidate to survive, around the niche of helping to maintain the small business credit availability larger banks have abandoned.4
Large banks have the capital to invest in digital and mobile technology, which has been a draw for many local customers. Large banks also have the ability to offer their services for less than smaller competitors can afford to do. Smaller banks have still proven valuable to communities during difficult times, but at the current trajectory, smaller banks will not be there when the difficult times arrive. Since 2008, 17,000 branches have closed, which is a loss of over 18% nationally; rural communities and low-income urban communities have been hit the hardest.5
The significant closure rate has made it difficult to enforce the Community Reinvestment Act of 1977, which was designed to prevent discriminatory lending practices among private banks, and instead encourage them to rebuild and revitalize the communities they serve. As small banks began disappearing, people were forced to find alternative sources, most of which are unregulated and often predatory: payday lenders, auto loan title lenders, or check cashing locations, for example.6
Consolidation is mostly a product of large bank mergers and acquisitions; when M&As dominate the market, small community banks disappear, sometimes as many as 200 a month (reached during the pandemic). These ‘banking deserts’7 have cut people off from face-to-face financial assistance in what were already distressed communities.
Financial Contagion Risks
Like a virus, financial contagion spreads a crisis from one area of the economy to everything in economic proximity. Banks in Germany, Belgium, the Netherlands, and Switzerland were exposed to our Financial Crisis through buying, packaging and selling our toxic U.S. mortgage bonds in their countries. These banks passed the contagion onto Ireland and Spain by utilizing similar credit methods to enable their unsustainable real estate booms. In all cases, the psychological tendency for people to follow perceived authority led to the chain of events we refer to globally as The Great Financial Crisis.
Large Banks are parasitic by nature and will indiscriminately feed off the lifeblood of small communities and large ecosystems alike. When they feed too greedily, communities (and even sometimes ecosystems) can collapse, also taking these large predator banks down in the process. National Public Banks perform the opposite function: they give life to communities, not take it away. Therefore, it is incumbent upon each American to give this alternative financial structure a closer examination.
How a National Public Bank Would Help
In the period leading up to the 2007-2008 Financial Crisis, Wall Street gambled with other people’s money, other people’s homes, other people’s savings, and other people’s livelihoods; the job of big private banks is to get even bigger, therefore—technically—big private banks were doing their job. Meanwhile, the job of federal government is to tax and spend to promote the general welfare of its citizens, a job which federal government has never figured out how to do successfully.
In the Great Depression era of the 1930s, government reinstated a national public bank; the HomeOwners’ Loan Corporation kept a million Americans in their homes after they had been foreclosed upon by private banks. Not only did the government of 2008 let homeowners fail, they turned around and sold their homes off to Wall Street investment trusts, who incrementally raised national rent prices, and drove the subsequent feeding frenzy Americans currently feel as double-digit inflation.
The evidence is clear: Every one of the changes needed for private banks to crash our economy was unconditionally granted by the federal government. Most importantly, not one of these federal government decisions promoted the general welfare of the American people, which amounts to ‘taxation without representation,’ a slight that 250 years ago impelled Americans to seek new representation. The people of that time already knew that money was speech, and exercised their freedom of speech by withholding tax money payments when their general welfare was not being promoted. Modern economics teaches us that to get paid, one must ‘deliver the goods;’ when the people finally realize that they pay government to provide a service that is not being rendered, the people will find that their money has leverage, too.
The solution is simple: we cannot control the actions of Wall Street because we do not own it; we do, however, own the federal government, and supply it with a portion of our income so it can promote our general welfare. To fix government so it can do its job we need to disconnect the money hose that runs from the federal government to Wall Street and connect it instead to the Bank of the United States—the Taxpayer’s Bank—so that taxpayer money flows through a National Public Bank and back to taxpayers, to promote their general welfare.
The Federal government not only has the Constitutional authority to create its own national public bank, it also has the authority to create and regulate the money that flows through it, should it ever decide to do its job in this area as well. When government correctly attaches the taxpayer money hose so that it flows back to the taxpayer, the potential exists to finally reverse the polarity of money from a tool of human oppression to one of human empowerment. No matter what tall tale is being told, human labor is the only source of value creation; private money drains the value of human labor toward private pockets, while public money can be repurposed to empower the value of human labor, because it would send the money back into the pockets of those who do the labor. It is not the job of the private sector to promote the general welfare; no number of regulations will change this. We pay government to promote our general welfare and can no longer allow them to outsource this job to anyone else.
Public Banks Add Competition
A National Public Bank branch positioned in every community, to provide affordable needs and all essential economic infrastructure, will create a downward pull on inflationary tactics that statistically occur when competition is not present.
The privatization of federal government responsibilities would cease to become necessary, thus no work would need to be outsourced, which also means that no taxpayer money would need to be outsourced, either.
Public Banks Can Implement Public Policy Direction
As a National Public Bank helps grow the community, through loans that benefit people and the real economy first, distressed communities can begin to flourish. Through this mechanism, all public policy priorities can be addressed, beta tested, and implemented in real time. Once successful solutions are found in one community, their formula for success can be shared with other communities. Multiple strategies can be attempted at the same time, if need be, with each community as a public policy test site.
Public Banks Can Act as a Political Counterweight
A National Public Bank is a direct tool to stabilize communities at the grassroots level and allows locals to politically create the community in which they wish to live. Wall Street money directs government toward policy that benefits Wall Street’s American Dream; the American Dream of small communities is overlooked, however, because Wall Street is designed to drain value wherever it exists, not create it. Thus, communities with no ready source of value are deemed a ‘risky investment’ and bypassed.
With a public taxpayer’s bank, filled with taxpayer’s money, all communities will be able to gain political representation, because economic power is political power. When a bank holds everyone’s money, and that money is used to invest in one another, it ties everyone’s collective economic fates together; any community that does not succeed essentially becomes a drain on the cost of the whole. Thus, not only would every American in every community be politically represented, every American would have a financial ‘interest’ in making sure that every community succeeds.
The importance of the National Public Bank will never diminish, as it’s job is to fulfill the Constitution’s promise to promote the general welfare of the population. it is unclear whether the goods and services Wall Street is selling would have any use in the future, but if the so-called free market is allowed to function un-subsidized, this question would soon be answered.
Public Banks Provide Oversight on Mega-Banks
The ultimate goal of the National Public Bank is to have all money generated through it, using a set ‘federal funds rate’ of 4%, so that even Wall Street will have to borrow—and pay back—the money it needs to run its operations. This will finally create the ‘free market’ the private sector pretends they want. With no safety net below them, those who risk too much will fail and be absorbed by the National Public Bank, so that eventually private banks will either become extinct or evolve into something for which people still have a use. If, for instance, Wall Street returns to its roots as purely a gambling establishment, current tax laws do not allow gamblers to write off their net operating losses, or spread their losses out over subsequent years, which would at least force gamblers into less risky ventures, as their losses would no longer be tied to the rest of us.
Simply put, a National Public Bank is the People’s Bank. It is the Taxpayer’s Bank. It’s the Main Street Bank. It is the Bank of the Real Economy. It will become the tool to implement public policy at the community level in real time, and the only public policy the American people have ever needed is for government to promote their general welfare.
Please join us in our campaign to reestablish a Constitutional version of money, where taxes run through a National Public Bank and straight back into our communities. It will tie our fates together, not through our collective indebtedness to some higher authority, but to the shared value of our collective passion, effort, and ingenuity. Simply by talking about it, you will help introduce National Public Banks into the public conversation, where it is sure to resonate, and begin shaping a new—more sustainable—narrative.
1. How strong are regional and community banks in the U.S.?
2. Lest We Forget: Why We Had a Financial Crisis
3. United States, et al. v. Bank of America Corp., et al., No. 13-5112 (D.C. Cir. 2014)
4. Bank Consolidation and the Provision of Banking Services
5. The Community Reinvestment Act (CRA) and Bank Branching Patterns
6. Bank Consolidation and the Provision of Banking Services
7. The Great Consolidation of Banks and Acceleration of Branch Closures Across America