International Finance Regulation: The Quest for Financial Stability

CHAPTER 3 The Lessons of the Recent Financial Crises: The Explosion of Balance Sheets

“Advanced economies have steadily increased leverage for decades. That era is now decisively over. The direction may be clear, but the magnitude and abruptness of the process are not. It could be long and orderly or it could be sharp and chaotic.”

—Bank of Canada and Bank of England Governor Mark Carney

The transformation of the landscape of the U.S. capital markets led to structural evolutions that added substantial nonbanking assets to the balance sheet of commercial banks and long-term assets in the balance sheets of investment banks: the removal of the Glass-Steagall Act¹ showed its limitations and was followed by corrective measures of the Dodd-Frank Act of 2002.

Since the beginning of this century the total assets of United States banks increased from $6.2 to $13.4 trillion. At the same time, the gross domestic product (GDP) grew from $10 to $15.7 trillion. They now represent 85 percent of the country's GDP (see Table 3.1).

TABLE 3.1 Federal Deposit Insurance Corporation Assets

Year	No. of Inst.	Cash and Due From	Investment Securities	Total Loans and Leases	Allowance for Losses Loans and Leases	Net Loans and Leases
2012	6,096	1,333,763,534	2,750,149,789	7,047,941,339	152,157,881	6,895,783,458
2011	6,291	1,195,924,598	2,541,235,366	6,719,065,712	178,635,735	6,540,429,978
2010	6,530	922,704,016	2,351,738,355	6,594,996,347	217,973,473	6,377,022,874
2009	6,840	976,572,935 ...