Like every other industry, banks are getting bigger.
While the local bank isn’t quite long gone, it’s becoming far more rare in an era dominated by major institutions such as Chase, (JPM) - Get Report TD Bank (TD) - Get Report and Bank of America (BAC) - Get Report. As the Federal Reserve found in one study, between 2000 and 2014 more than 3,000 small banks closed (those handling assets of less than $100 million.) In that same period, the overall amount of money held by the U.S. banking system increased, with almost all growth among institutions holding more than $10 billion in assets.
If that doesn’t drive the point home, this chart by the Institute for Local Self Reliance should do the job. In 1980 the U.S. had more than 20,000 registered banks. That number has declined every single year since.
Customers are increasingly likely to rely on the large banks that can provide national or even global services, and which can offer more competitive interest rates. Meanwhile, from the perspective of banks, consolidation has become a major asset as well. Today’s banks focus on big-budget items such as digital banking, mobile apps and tech security. These programs cost substantial amounts of money to get right, but they’re also expenses that tend to scale well. An app can serve 1 million consumers almost as easily as it can serve 1,000, after all, making economies of scale an increasingly essential part of modern banking.
That said, economies only scale so far. Larger banks do make more money, but they aren’t necessarily any more efficient. As economists from the Kansas City Federal Reserve found, “while the smallest banks can benefit significantly from growth, the advantages of growth become progressively smaller until they are exhausted. For most midsized community banks, the increase in returns relative to size is modest; these banks would need large increases in size to realize significantly higher returns.”
In other words, at a certain point big banks make more money not because they necessarily have a better business model but because they are, well, just plain bigger. And here are the 10 biggest in the world as measured by total assets.
(Data as measured by the industry reporting magazine S&P Global.)
Top 10 Biggest Banks in the World
10. Credit Agricole Group
Assets: $2.12 trillion
For a nation approximately the size of Texas, France is surprisingly well represented on this list. In no small part this is thanks to the success of the European Union. For all of the currency zone’s flaws, it has succeeded in creating the second largest economy in the world after the U.S.
France has profited well off of this relationship. As one of the largest economies in the EU, France and French banks have capitalized on their already strong global standing. This brings Credit Agricole, a bank which has its origins extending agricultural loans, onto our list.
9. BNP Paribas SA
Assets: $2.33 trillion
This bank was formed from a merger of two large institutions in France, the Banque Nationale de Paris, or BNP, and Paribas. This is the second of three European institutions on our list, a major bank that operates on most continents and offers retail and depositor banking services.
8. Bank of America
Assets: $2.35 trillion
For many U.S. consumers, Bank of America (BAC) - Get Report might be the single most recognizable name on our list. While all of the entries here are depositor and retail institutions, B of A has made a particularly aggressive push for consumer-level business. They have carved out a significant retail presence where other banks have begun focusing more on deregulated investments and business lending.
Combined with the fact that this is only one of two U.S. banks on our list, this has made B of A one of the largest banks to be a household name.
7. HSBC Holdings
Nation: United Kingdom
Assets: $2.55 trillion
In a more fair and just world, HSBC would stand for Her majesty’s Secret Banking Corporation. This institution would exclusively fund suave espionage services, it would only ever need to employ Daniel Craig and Idris Elba (with Scarlett Johansson on secondment), and its board of directors would comprise Sean Connery and three martinis.
Alas, we live in a fallen world. In fact, HSBC stands for the Hongkong and Shanghai Banking Corporation. It has its origins in the British trade with China and its East Asian colonies, and today the company operates in more than 60 countries around the world.
6. JP Morgan Chase
Assets: $2.62 trillion
If you would like to understand why every serious economist and politician in the U.S. has at least one eye on China, here’s a data point. Fifty years ago, American institutions would have dominated a list like this. Today, JP Morgan Chase is the last American entry and it doesn’t even merit the top five. All but one of the rest are based in China.
Does that mean America’s era has ended? Probably not. After all, no matter what country you’re in, when someone conducts research like this, they measure each bank in U.S. dollars. America’s economy and money is still the standard by which the rest of the world is judged, and there are far more reasons for that than simple size.
5. Mitsubishi UFJ Financial Group
Assets: $2.81 trillion
The Mitsubishi bank (MUFG) - Get Report comes from another merger. In fact this institution was formed relatively recently out of the Bank of Tokyo-Mitsubishi and UFJ Bank. For a brief period in the 1990s this was even the largest bank in the world.
Mitsubishi bank works mostly in Japan, but almost 40% of its business does come from outside the country. This gives it a prominent place on the world stage, while keeping most of its assets much closer to home.
4. Bank of China Ltd
Assets: $3.09 trillion
The remaining four entries on this list are all based out of China, and the majority of their holdings are Chinese assets. There are two things to understand about this.
First, this unambiguously represents the modern success of the Chinese economy. In a single generation China grew from an agrarian nation struggling to feed its own people into the world’s third largest economy (behind the U.S. and the European Union).
Second, this represents the difference between assets on deposit and size of an economy. Chinese banks hold more assets on deposit than American banks. By some measures, Chinese banks hold approximately $27 trillion on deposit compared ( to roughly $13 trillion in U.S. institutions. This is true despite the fact that the American economy is still about 40% larger by GDP than China’s.
3. Agricultural Bank of China
Assets: $3.28 trillion
Any lists of the 10 largest banks in the world will note the presence of the Agricultural Bank of China, one of the country’s Big Four. These institutions, all four of which occupy the top slots of our list, are the state-owned banks of the Chinese economy.
This makes them somewhat asymmetrical to western institutions. While the Big Four Chinese banks are the largest in the world by assets on deposit, in large part this is because they are given special roles in that country’s economy. This has led to a hyper-concentration in banking assets. Each of the Big Four banks is worth three or four times as much as the next largest institution, and each (very roughly) corresponds to an assigned role in the economy.
This has generally led China to have fewer, but larger, banks than the west overall. It also makes lists like this something of an inaccurate comparison. In part, JP Morgan and Bank of America serve customers who tend to keep less money on deposit. However in equal measure, these banks don’t have the advantage of government ownership and subsidy.
2. China Construction Bank
Assets: $3.37 trillion
The China Construction Bank, as its name suggests, is generally intended to finance new construction, municipal works, infrastructure and other forms of capital-level projects. As with the other Chinese entries on this list, it is state owned and sponsored.
1. Industrial & Commercial Bank of China
Assets: $4.02 trillion
Here we have it, the largest bank in the world.
The Industrial and Commercial Bank of China is the largest of the Big Four. It is the largest financial institution by volume of deposits and assets, and also one of the biggest companies in the world. As with the other Big Four, this is a state-owned and subsidized company, meaning that it is difficult to disentangle the assets of the Industrial & Commercial Bank of China from those of the Chinese government overall. Calling this the world’s largest bank is a little bit like listing the U.S. Army as the world’s largest security operation; accurate, but somewhat unfair to the Pinkertons.
This bank opened its doors in 1984. It plays a role closer to that of a general lender in the Chinese economy although, as the name suggests, its focus was originally on financing industrial, manufacturing and other commercial enterprises.