FDIC chairman Sheila Bair doesn’t think a full government takeover of Citigroup and other multinational financial institutions is practical or even possible. Here are her reasons, as summarized by Pete Davis:
1. The legal authority to take over large banks does not currently extend to multinational financial conglomerates;
2. The FDIC lacks the funding to conduct such a massive bailout;
3. Other countries have regulatory oversight of these financial conglomerates too, and they may object to a U.S. takeover.
This made me curious as to how much of Citigroup was a domestic commercial bank that the FDIC could take over, and how much was multinational financial stuff outside the FDIC’s jurisdiction. So I took a look at the balance sheet from Citi’s new 10K (pdf, with numbers as of Dec. 31, 2008).
First, there’s the division between Citigroup and Citibank. Citigroup has assets of $1.938 trillion, and liabilities of $1.797 trillion. Citibank has assets of $1.227 trillion and liabilities of $1.145 trillion. So right there, about 36% of the company’s assets and liabilities are outside the bank.
Then there’s the bank itself. Its balance sheet separates deposits in U.S. offices, which are insured by the FDIC, from deposits in offices outside the U.S., which aren’t. Of $755 billion in deposits, $241 billion are in the U.S. and $515 billion outside (the numbers don’t add up because I’m rounding).
The first striking thing there that Citi’s U.S. banking operation just isn’t all that big: J.P. Morgan Chase has $722 billion in U.S. deposits (and $287 billion outside the country). Washington Mutual, which was not deemed by regulators to be too big too fail, had $182 billion in deposits, in the same territory as Citi’s U.S. bank.
The second is that if Citibank’s overall business breaks down along domestic/foreign lines pretty much as deposits do (which probably isn’t quite the case, but close enough), that gets you to $392 billion in assets and $365 billion in liabilities. That’s the part of Citigroup that the FDIC has the authority to take over. I bet the FDIC could handle it, at least if it gets the new $500 billion credit line it wants from Congress. But this would leave an entity (or entities) with about $1.5 trillion in assets and $1.4 trillion in liabilities to be taken over by foreign governments or fail in pretty much the same unruly manner that Lehman Brothers did.
To repeat: Citigroup has liabilities of $1.797 trillion. The deposits that the FDIC has some responsibility for (up to $250,000 per depositor) add up to $241 billion. So we have this reasonably sensible system for winding down troubled banks, but when it comes to the most troubled big banking company in the country, said system only covers a fraction of the overall operation. Which leads to a couple of conclusions:
1. I get why the administration is so reluctant to take over Citi completely.
2. I don’t get why we all (I’m including myself in this) thought it was okay to allow the creation and growth of gigantic financial companies for which we had absolutely no plan for winding down in case of trouble.