Big banks are growing bigger across the world.
This growth will be one of the reasons why, when the 18.6-year cycle nears its end, the collapse of the global financial system will be swift and brutal.
Let me explain…
In the United States, JPMorgan has been using the banking crisis to expand, prompting headlines such as this:
Back in 2008, JPMorgan bought the failed investment bank Bear Stearns… and Washington Mutual, which at the time was the biggest bank failure.
This year, it has bought what remained of First Republic, which, according to Financial Times, was the country’s second-biggest bank failure.
JPMorgan clearly has an appetite for banks in distress.
And it is growing bigger and bigger. Right now, it has almost $4 trillion in assets.
Its share of total deposits is about 15%. This is a massive concentration.
Too Big to Fail
JPMorgan is definitely “too big to fail.”
However, my 18.6-year cycle suggests that when the cycle turns, it might do just that.
And there will be no bigger player in the private space to rescue it.
Even the U.S. government may not help. Saving JPMorgan would go against all the banking reforms enacted since the Great Recession.
Plus, it would potentially cost hundreds of billions of dollars in taxpayers’ money.
But here’s why I have more reasons to believe that the turn of the cycle will be swift and brutal.
In short, banks around the world are getting bigger, making the whole financial system depend on a handful of major players.
If any one of them goes down, other dominoes will fall quickly because there won’t be many of them left in the first place.
Global Banks Are Expanding
This is classic late-stage behavior on the part of the global financial giants.
China Construction Bank is the world’s second-largest based on assets.
It’s expanding into Europe.
Higher interest rates in the region open new opportunities for banks, and the biggest players have the upper hand when it comes to ruthless expansion.
In turn, BNP Paribas, which is the eurozone’s biggest bank, is expanding in Southeast Asia.
It will use its wealth management platform in Singapore to grow its business in the region, starting with Thailand.
China Construction Bank has its strategy tied to the real estate markets in China and beyond… it’s literally in the name.
BNP Paribas is expanding into Singapore, where real estate is one of the key investments…
Do you see what’s going on?
Major global players whose fortunes depend to a large extent on real estate are becoming “too big to fail.”
When the cycle turns, the global real estate market will crash. And that crash will need to knock down just a couple of players for the whole system to collapse.
Conditions are lining up. But as I’ve been saying, this won’t play out for years yet.
Editor, Cycles Trading with Phil Anderson