In agreeing to take over Wachovia, Citigroup joins Bank of America and JPMorgan in working with regulators to take over competitors that have run out of cash or are loaded with failing mortgages. Bank of America swallowed Merrill Lynch & Co. as well as Countrywide Financial Corp., and JPMorgan took over Bear Stearns and Washington Mutual.
Citi, JPMorgan and BofA are by far the largest commercial banks in the country, with Wells Fargo & Co. now a distant fourth.
The trend will lead to greater regulation, however. The Federal Reserve and the U.S. Treasury, as a condition of helping troubled financial institutions, are forcing the combinations of big banks and requiring lightly regulated Wall Street firms to become commercial banks. Commercial banks are highly regulated and are required to have a far larger capital cushion against losses.
Several experts said it was likely that the insurance industry, now regulated by individual states, eventually would be moved under the umbrella of a federal regulator, because the government had to take over the giant New York insurer American International Group Inc., along with mortgage giants Fannie Mae and Freddie Mac.
"The organizing principle is that if an institution is big enough to pose a risk to the overall system, it may need to be subject to federal regulation," said Jim Wilcox, a UC Berkeley banking professor.
Insurers were among the institutions that would have been helped by the Bush administration's proposed $700-billion bailout -- a rescue plan that was available only on condition that the beneficiaries give the government more control over them going forward.
The House's rejection of the bailout Monday is unlikely to derail the trends toward consolidation, increased limits on certain risky financial derivative products and the move to empower regulators, said Donald F. Kettl, political science professor at the University of Pennsylvania.
He said pressure for additional regulation was mounting not only here but among our allies, nations where the fallout from the U.S. credit crunch is creating "a global financial crisis."
To be sure, the idea of more regulation of bigger companies strikes many as a flawed model.
UCLA banking professor Avanidhar Subrahmanyam said that regulators should protect "the little guy" through deposit insurance and other safeguards at retail banks, but the country would generally be better off if companies were allowed to compete freely and to fail if they made bad mistakes.
"Regulators will never be able to keep pace with financial innovation," he said.
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scott.reckard@latimes.com
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Bank deal
Citigroup
* Founded: 1812
* Headquarters: New York
* Chief executive:
Vikram Pandit
* Employees: 357,000
* Key brands: Citibank, CitiFinancial, Salomon Bros., Smith Barney, Primerica
* Assets (as of June 30): $2.1 trillion
Wachovia
* Founded: 1879
* Headquarters:
Charlotte, N.C.
* Chief executive:
Robert K. Steel
* Employees: 120,000
* Branches: 3,300
* Assets (as of June 30): $812.4 billion
Source: Times research
