Banks

Banks, in their most basic function, act as financial intermediary institutions in an economy. They tend to act as conduits for capital and credit allocation between individuals, corporations, and the state. Banks also function as institutions of financial deepening—that is, they contribute to the monetization of the economy. Generically, banks are incorporated into the financial services industry.

Despite the importance of banks in modern economic systems, the relationship between power and banks themselves has not been fully evaluated. A useful departing point from which to analyze the power of banks may be traced to Vladimir Lenin's Imperialism: The Highest Stage of Capitalism (1916). In this influential work, Lenin defined imperialism as “the monopoly stage of capitalism.” Lenin added that such a definition

In the Leninist critique of the power of banks, three of the critical ingredients of the last stage of capitalism (i.e., imperialism) include the merging of bank capital with industrial capital and the creation of finance capital, the increasing importance of the export of capital, and the fusion of the capitalist state with banks and industry.

Other recent analytical work has also tended to view the role of banks from a negative perspective, largely from the premise that they accelerate the growth of noxious corporate power. In this critical framework, the perception that banks hold growing power is based on the view that the income of many international banks is growing both absolutely and as a proportion of the world's total gross domestic product (GDP). Viewed in absolute terms, as output from services becomes more central in emerging and transition economies, the potential economic power of banks is staggering. For instance, according to The Banker magazine's annual index of the world's largest banks, the top 10 banks—in total assets—include those shown in Table 1.

By virtue of holding assets on behalf of individuals and corporations, the analysis of the power that banks may exert begins with an assessment of their aggregate assets, whereby it is imputed that banks with large asset holdings are likely to exert more power than do those with lesser asset holdings. However, empirical analyses of the relationship between a bank's size and political power suggest that there is no apparent correlation between bank concentration and political power. The potential economic power exerted by banks [Page 52]could be considerable, if one equates revenues with GDP. For instance, in 2006, world GDP was $60.7 trillion, of which assets of the 10 largest banks, listed in Table 1, equaled about 14.3 trillion, about 23.5% of world GDP.

Although the aggregate economic strength of the world's largest banks is considerable, it would be simplistic to argue that aggregate assets themselves equal political power. First, total assets (or any other aggregate measure, such as sales or revenues) would not be comparable to GDP because it excludes liabilities. If one uses other widely used industry measures of bank strength, such as market capitalization or Tier 1 capital, the potential economic power is far more modest.

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