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China's big banks eclipse US rivals

There are four banks in the United States with assets over $1 trillion and at least four big banks in China that have assets of a comparable size. The difference is: The banks in China are surging in size. The banks in the U.S. are not. That means the Chinese banks are headed toward global domination of the world banking industry.

In 2004, the first year for which I have good numbers, the four U.S. banks – JPMorgan Chase, Bank of America, Citigroup and Wells Fargo -- had $4.2 trillion in assets. The four big Chinese banks – Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China – had $2.1 trillion.


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Chinese flag

As of the third quarter of 2015, those numbers have changed dramatically: The U.S. banks have $8.1 trillion in assets, while the Chinese banks have $11.8 trillion.

The shift in power is even more dramatic if one looks at the net profits of both sets of institutions. In 2004, the four U.S. banks had a total of $42.7 billion in profits, while the Chinese banks had $12.6 billion. If we use the third quarter of 2015 to make a current comparison, and we annualize the figures, we see that the U.S. banks now have $86.4 billion in net profit and the Chinese banks have $141.2 billion.

The Industrial and Commercial Bank of China made more money in the third quarter than JPMorgan Chase and Wells Fargo combined. From an asset standpoint, the smallest of the big four in China, the Bank of China, has more assets than JPMorgan Chase, the biggest bank in the United States.

And, while the U.S. has been worried about its banks getting "too big to fail," China's policies seem to be fueling the growth of its banks. China has joined with Russia and other emerging markets to make the yuan the world's second global reserve currency. China has also joined with the BRICsto set up a new world bank called the Asian Infrastructure Investment Bank or AIIB. Every major country in the world has joined except the United States and Israel. China has also asked the IMF to certify its currency as a global reserve currency.

The Chinese banks are helping to fund China's penetration into Latin America andAfrica among other places.They are lending the money that Chinese companies need to grow in these areas. Plus, the Chinese monoliths are opening branches in multiple countries around the globe.

Meanwhile, the U.S. keeps issuing new policies that force its big banks to shrink.

It is clear that the policies of the United States and those of China will achieve the same result: They will cause the United States to give way to China. They will further certify the fact that the United States is rapidly moving away from being the leader in global banking while the Chinese plunges forward to grab the prize.



Commentary by Richard X. Bove, an equity research analyst at Rafferty Capital Markets and the author of "Guardians of Prosperity: Why America Needs Big Banks" (2013). Follow him @DickBoveSays.