Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

TARP, followed by the stress tests, the Dodd-Frank regime and capital planning, put the American banking system on a forced road to recovery. It foreclosed more radical options. The banks remained too big to fail. Far from downsizing or breaking them up, by 2013, J.P. Morgan, Goldman Sachs, Bank of America, Citigroup, Wells Fargo and Morgan Stanley were 37 percent larger than they were in 2008.73 The resources of the state were put one-sidedly at the service of management and shareholders. But if the aim was to get America’s banks out of the emergency ward, it worked. As Geithner insisted, the ultimate test of his policy of stabilization was the financial health of the banks, and on that score the record was pretty unambiguous. Between 2009 and 2012 the eighteen largest US banks increased their common capital from $400 billion to $800 billion. They reduced their ratio of risky wholesale funding from $1.38 per dollar of FDIC-insured retail deposits to $0.64. At the same time, they raised the share of their assets in cash, Treasurys and highly liquid instruments from 14 to 23 percent.74 The elite closure and cooperation that the Treasury and the Fed had finally managed to orchestrate in October 2008 was doing its job.