28 Sep 2013

The 50 biggest banks : The average bank has an assets to capital ratio of 369 to 1

There's a very interesting table of the 50 largest banks in the world, ranked by asset sizes, that you can find here. What makes it particuarly interesting is the fact that the table includes not just each banks total assets, but also its level of capital.

Earlier this year, I compiled a table using this data showing that the top 50 banks had combined assets of over $64 trillion. Those numbers were based on the financial statements for 2011, but the site now has the figures for 2012, and so I have redone the exercice. It shows that total assets have dropped by about 1% to $63.6 trillion.

But I thought it would be amusing to rank the 50 banks by their assets to capital ratios.
As you can see, while the 50 banks have $63.6 trillion in assets, total capital is only $765.9 billion - an assets to capital ratio of 83:1. But some banks have unbelievably high ratios. In 7 cases, the ratio is over 1000:1. As a consequence, the average ratio is a staggering 369:1.

Bravo UBS. You come top of the list with a Assets to Capital ratio of 3279:1. The Dutch bank ING also does well, managing to have 1593 times more assets than capital, closely followed by France's Société Générale with a ratio of 1283:1.

How is this possible? Aren't banks supposed to keep their assets to capital ratios under control? What about Basel 2 and Basel 3?

Well, I think that the answer is that the banks assets are "risk weighted". For example, if the bank holds government debt on its books, these assets are considered to have zero risk, and therefore don't get counted. They can have as much government debt as they want, even with no capital backing. In other words, the system is designed so that governments can take on unlimited levels of debt. Banks can create as much money as they want to allow governments to run up public sector debt. And of course, the more debt, the better, as far as the banks are concerned. It's easy earnings, with no risk. And, as I have argued before, it's a system that has allowed 3% of UK GDP to be sucked out of the economy in the form of interest payments on public sector debt for 60 years at least.

Could you come up with a more stupid system? As Mervyn King, the ex-governer of the Bank of England, put it in a speech in 2010 : "Of all the many ways of organising banking, the worst is the one we have today." Spot on, Mervyn.

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