The State of Banking

The Banker has released its annual report of the world's top 1000 banks. Despite the fact that profits collapsed over 85% from 2007 to 2008, the ranks are mostly unchanged from previous years. The Tier 1 capital rankings have also changed little as banks have raised massive amounts of public and private capital to off-set capital losses from the crisis, and aggregate Tier 1 holdings by the top 1000 actually increased in 2008. Perhaps more surprisingly, when government injections of capital are subtracted the rank order still changes very little, indicating that many of the top banks were not actually insolvent in the worst days of the credit crisis, but rather illiquid (this was Robert Rubin's argument back in September). Government-provided liquidity gave banks a window to raise more capital, unwind some of their positions, and make it through the crisis relatively unscathed. Now that the worst is (hopefully) past, banks are paying back the TARP money as fast as the government allows them.

This massive worldwide effort to raise capital has been largely successful: in aggregate, new capital has almost exactly off-set writedowns and losses for the year. In Europe and Asia, new capital is actually greater than the total losses. This is not to say that there haven't been significant losses; there have been, and they've been disproportionately concentrated in the U.S. and U.K. But the public and private efforts to recapitalize the international banking system appear to have been largely successful.