Martin Neil Baily, William Bekker and Sarah E. Holmes – Brookings – May 26, 2015.

“This research looks at how the financial sector has evolved over the periods both before and after the financial crisis of 2007-8.  This paper is the first in a series, examining the balance sheets of the four largest banks; it will be followed by papers on the regional banks, the smaller banks and the shadow financial sector. The assets and liabilities of the big four banks grew very rapidly for years prior to the financial crisis as a result of deregulation, particularly through the Riegle-Neal Act in 1994, but also from the Gramm-Leach-Bliley Act of 1999. These laws gave banks the ability to consolidate and expand both across geographic and service lines, and they continued to do until the crisis hit years later. Paired with generally robust economic growth, the deregulation of the financial sector enabled the largest banks to post double-digit growth rates right up to the onset of the crisis. The theme of consolidation continued, in a way, into 2008 as the U.S. government encouraged acquisitions of troubled financial institutions by stronger ones during the worst moments of the crisis.  With no clear precedents or protocols for managing the failures of such large and interconnected institutions like Lehman Brothers, Merrill Lynch, and Bear Stearns before the crisis, the U.S. government took was forced to take an ad hoc approach, pushing  these major investment banks into mergers with  or acquisitions by other, stronger private institutions. Likewise, to deal with failing depository institutions, the U.S. government encouraged mergers with stronger banks or dispositions of bank subsidiaries by troubled institutions to other banks, with support provided by the FDIC as required.  As a result, today, the four biggest banks (“Big Four”) are JP Morgan Chase, Bank of America, Citigroup and Wells Fargo.”