19 Chinese banks the most profitable, but Western banks have more Tier 1 Capital

(1) Goldman Sachs staff in line for record average bonus of £430,000
(2) The real economy was traded away for a make-believe economy - Paul Craig Roberts
(3) Asia and the Meltdown of American Finance: Self-destruction of a Superpower
(4) Chinese banks the most profitable, but Western banks have more Tier 1 Capital

(1) Goldman Sachs staff in line for record average bonus of £430,000

Last updated at 3:28 PM on 02nd July 2009

http://www.dailymail.co.uk/money/article-1197006/Goldman-Sachs-staff-line-record-average-bonus-430-000.html

Apparently the banking crisis is over - workers at Goldman Sachs are set to receive record bonuses of £430,000 ($700,000) each this year, totalling £12.2billion.

Rival Morgan Stanley will hand out rewards which come close to the record $340,000 which each employee won in 2007.

Figures are based on analysts' earning forecasts for the banks, which have both seen an upturn in fortunes in the first half of the year.

Furious reaction has been fired from critics who say that it is this system of lavish bonuses - and the resultant culture of greed - which got the world into the economic mess it is currently languishing in.

'This suggests that far too many people in the banking sector are going back to business as usual and appear to have learnt no lessons from the past,' said Vince Cable, Liberal Democrat Treasury spokesman.

'Governments and regulators have been far too slow and complacent in introducing a new regulatory framework to prevent people in the banking industry betting the house and creating massive instability.'

Goldman's profits jumped 20% to £1.8billion in the first quarter, a performance which puts it on track to pay out the record £430,000 to employees - nearly double last year's average of £363,000 and higher than 2007's record $661,000 prizes.

A Goldman spokesman said bonuses 'remain fundamentally tied to the firm's performance'.

Top earners will likely include chief executive Lloyd Blankfein in New York and London-based executives Michael Sherwood and Richard Gnodde.

(2) The real economy was traded away for a make-believe economy - Paul Craig Roberts

What Economy?

Paul Craig Roberts

July 16, 2009

http://www.counterpunch.org/roberts07162009.html

There is no economy left to recover. The US manufacturing economy was lost to offshoring and free trade ideology. It was replaced by a mythical "New Economy."

The "New Economy" was based on services. Its artificial life was fed by the Federal Reserve's artificially low interest rates, which produced a real estate bubble, and by "free market" financial deregulation, which unleashed financial gangsters to new heights of debt leverage and fraudulent financial products.

The real economy was traded away for a make-believe economy. When the make-believe economy collapsed, Americans' wealth in their real estate, pensions, and savings collapsed dramatically while their jobs disappeared.

The debt economy caused Americans to leverage their assets. They refinanced their homes and spent the equity. They maxed out numerous credit cards. They worked as many jobs as they could find. Debt expansion and multiple family incomes kept the economy going.

And now suddenly Americans can't borrow in order to spend. They are over their heads in debt. Jobs are disappearing. America's consumer economy, approximately 70% of GDP, is dead. Those Americans who still have jobs are saving against the prospect of job loss. Millions are homeless. Some have moved in with family and friends; others are living in tent cities.

Meanwhile the US government's budget deficit has jumped from $455 billion in 2008 to $2,000 billion this year, with another $2,000 billion on the books for 2010. And President Obama has intensified America's expensive war of aggression in Afghanistan and initiated a new war in Pakistan.

There is no way for these deficits to be financed except by printing money or by further collapse in stock markets that would drive people out of equity into bonds.

The US government's budget is 50% in the red. That means half of every dollar the federal government spends must be borrowed or printed. Because of the worldwide debacle caused by Wall Street's financial gangsterism, the world needs its own money and hasn't $2 trillion annually to lend to Washington.

As dollars are printed, the growing supply adds to the pressure on the dollar's role as reserve currency. Already America's largest creditor, China, is admonishing Washington to protect China's investment in US debt and lobbying for a new reserve currency to replace the dollar before it collapses. According to various reports, China is spending down its holdings of US dollars by acquiring gold and stocks of raw materials and energy.

The price of one ounce gold coins is $1,000 despite efforts of the US government to hold down the gold price. How high will this price jump when the rest of the world decides that the bankruptcy of "the world's only superpower" is at hand?

And what will happen to America's ability to import not only oil, but also the manufactured goods on which it is import-dependent?

When the over-supplied US dollar loses the reserve currency role, the US will no longer be able to pay for its massive imports of real goods and services with pieces of paper. Overnight, shortages will appear and Americans will be poorer.

Nothing in Presidents Bush and Obama's economic policy addresses the real issues. Instead, Goldman Sachs was bailed out, more than once. As Eliot Spitzer said, the banks made a "bloody fortune" with US aid.

It was not the millions of now homeless homeowners who were bailed out. It was not the scant remains of American manufacturing--General Motors and Chrysler--that were bailed out. It was the Wall Street Banks.

According to Bloomberg.com, Goldman Sachs' current record earnings from their free or low cost capital supplied by broke American taxpayers has led the firm to decide to boost compensation and benefits by 33 percent. On an annual basis, this comes to compensation of $773,000 per employee.

This should tell even the most dimwitted patriot who "their" government represents.

The worst of the economic crisis has not yet hit. I don't mean the rest of the real estate crisis that is waiting in the wings. Home prices will fall further when the foreclosed properties currently held off the market are dumped. Store and office closings are adversely impacting the ability of owners of shopping malls and office buildings to make their mortgage payments. Commercial real estate loans were also securitized and turned into derivatives.

The real crisis awaits us. It is the crisis of high unemployment, of stagnant and declining real wages confronted with rising prices from the printing of money to pay the government's bills and from the dollar's loss of exchange value. Suddenly, Wal-Mart prices will look like Nieman Marcus prices.

Retirees dependent on state pension systems, which cannot print money, might not be paid, or might be paid with IOUs. They will not even have depreciating money with which to try to pay their bills. Desperate tax authorities will squeeze the remaining life out of the middle class.

Nothing in Obama's economic policy is directed at saving the US dollar as reserve currency or the livelihoods of the American people. Obama's policy, like Bush's before him, is keyed to the enrichment of Goldman Sachs and the armament industries.

Matt Taibbi describes Goldman Sachs as "a great vampire squid wrapped around the face of humanity, relentless jamming its blood funnel into anything that smells like money." Look at the Goldman Sachs representatives in the Clinton, Bush and Obama administrations. This bankster firm controls the economic policy of the United States.

Little wonder that Goldman Sachs has record earnings while the rest of us grow poorer by the day.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com

(3) Asia and the Meltdown of American Finance: Self-destruction of a Superpower

From: James <jcumes@chello.at> Date: 17.07.2009 03:42 AM

> Asia and the Meltdown of American Finance, by R. Taggart Murphy
> http://www.japanfocus.org/-R__Taggart_Murphy/2931

All of this I predicted years ago, for example, in "America's Suicidal Statecraft: The Self-destruction of a Superpower" published in 2006. The Preface to that book read:

Preface

"Civilisations die from suicide, not by murder"

Arnold J. Toynbee

In July 1969, when Neil Armstrong took his first steps on the Moon, his great leap for mankind was uniquely an American achievement. American vision and management, American science and technology, American finance and investment, American skill and diligence, American will, planning and dedication accomplished what was arguably the greatest human achievement of the 20th century – perhaps of all time thus far – and America and Americans stood alone as the only country and the only people who could have done it.

Yet it came just at a point when, as the passing years have increasingly demonstrated, American power had begun to wane. In retrospect, what was a peak of human achievement at that time was also a peak in American power.

In that same month, as a harbinger of the American decline, the Federal Reserve Board of the United States raised the rate of interest sharply to "fight" what was then, in the midst of the Cold War and the intensely hot Vietnam War, a comparatively modest inflation. In effect, that simple act of economic policy would put an end to what had been, up until then, an ever more spectacular record of achievement by the American people and their administrations.

From that point on, the space race and much else besides became suspended or curtailed. The Apollo series was completed; but more than three decades have passed since then and Vietnam and the Cold War are history; but the grandeur of the American vision has faded whether for travel to the stars or realisation of human aspirations here on earth.

In August 1971, just two years after the first Moon walk and the simultaneous interest-rate hike, the Nixon administration cut the dollar's link with gold. The IMF's "Gold Window" was closed. After a quarter century, the IMF ceased effectively to monitor, regulate and stabilise the world's currencies. Currencies were allowed to float, some freely according to trade and monetary flows, some less freely through membership of a currency group and some through a peg to a major currency, usually the depreciating but still mighty American dollar.

A month before Nixon closed the "Gold Window", National Security Adviser Kissinger paid a sensational visit to Peking, presaging a visit by Nixon in February 1972. In between, the United Nations General Assembly once more debated which of Peking or Taiwan should occupy China's seat in the Assembly and thus, even more importantly, its permanent seat on the Security Council. This time the Assembly voted for Peking. At last, twenty-two years after taking power at home, the Government of the People's Republic of China took its rightful place in the United Nations.

That was an epic victory for the People's Republic; but, at that very moment, with stagflation under way and the Gold Window closed, an even greater victory was being prepared for it in the workshops of the economic and financial world.  In time, the interest-rate changes by the Fed in 1969, the closing of the Gold Window in 1971 and related economic and financial developments later would fundamentally transform the world economic environment and the balance, not only of economic power, but of political and strategic power as well.

Having delivered a first oil shock in 1973, the decade of the 1970s ended with a second and bigger oil shock and even worse consumer-price stagflation, especially – though not only - in the United States. Inflation peaked at about 13.5% in 1980. The Fed raised its key interest rate to a peak of 18%. Intriguingly, those events nearly coincided with Deng Tsao Ping's declaration in 1979 of a new and robustly capitalist economic policy for the People's Republic of China. China would, Deng said, follow the Japanese economic model. "To get rich," he added, "will be glorious."

Although he could not have known its miraculous potential at the time, Deng was destined to have the full, though largely inadvertent cooperation of the United States in accomplishing his economic objectives – and in "getting rich." From the 1970s through to the present, United States policies have been steadily directed to building up, quickly and substantially, the economic strength of China, along with other countries in Asia. All the while, those same policies have drained the real life out of the American economy.

After 1982, inflation in the United States fell to more normal levels, Reaganomics came into vogue and the United States began to challenge ever more robustly an ailing Soviet Union with the productive and innovative power of its economy and the might of its military technology. Less dramatically, in China, especially in the Hong Kong hinterland, infrastructure was being built and factories were going up. Production was getting under way that, in time, would supply markets all around the world – including especially the mighty consumer markets of the United States.

United States inflation continued to moderate. The price of oil stabilised. From a peak of about $800 an ounce to which it zoomed in 1980, gold fell back to around $250. The United States irregular trade surpluses of the 1960s shrank to become deficits in most of the 1970s. In the 1980s, the deficits grew larger almost every year and became chronic. Reaganomics and the challenge of the Cold War put the budget into serious deficit. Though it received little public recognition, supply from overseas solved the problem of domestic inflation and the countries providing the supplies – including China to an ever-increasing extent – held their proceeds in dollars and so helped critically to settle both the American trade deficit and the American budget deficit.

That decade of the 1980s was a time of mounting economic and financial disequilibria; but, at its end, one historic political and strategic objective of the United States was accomplished: the Soviet Union collapsed and with it the Soviet empire. The satellite countries were freed. The United States became the world's single, unchallenged superpower.

However, again, if some trends were positive, other less positive developments were stirring in the background. From being the world's greatest creditor country, the United States was slipping ever more heavily into debt. At some point in the late 1980s – while the Soviet Union was nearing its death-throes – the United States crossed the frontier from net creditor into net debtor territory.

For more than a decade before that, Japan and the newly industrialising Asian Tigers had been supplying the American consumer market. American manufacturing had started to decline. Asian manufacturing took over and supplied American markets as well as markets around the world, with ever more sophisticated and high-quality products. Now, Chinese industrial development began to accelerate and, especially as the 1990s advanced, spread more intensively along the Pacific seaboard to serve foreign markets globally.

The high-tech boom of the 1990s saw the United States return, for a few years, to something like the innovative and entrepreneurial glory of its venture-capitalist past. Stock-markets boomed, entrepreneurs made fortunes overnight, real investment recovered something of its former vitality, the budget deficit transformed itself into a surplus and, for a while, between 1994 and 1997, even the trade account moderated its chronic downward plunge.

Then, again, it all collapsed.

Too much air had inflated too many market bubbles. Underlying trends in real investment, productivity and production were too weak. The stock-market boom burst. Fixed-capital investment slumped. Finance capitalism and the shift in domestic inflation to external trade deficits pushed the United States deeper into debt nationally and households into heavy borrowing to maintain their consumption levels. Unemployment increased and real wage levels stagnated or fell. People played more and more with fancy financial paper in what had become – through such obsessions as free markets, privatisation and globalisation – a casino-like, speculative American and world economy.

From being the world's greatest creditor, the United States now became – ever more definitively – the world's biggest debtor. By 2005, the national debt stood at about $8 trillion – around 60% of Gross Domestic Product – with 40% of it held by foreigners, including foreign governments and central banks. Household debt reached $2 trillion. Total national, corporate and household debt was now computed to be around $41 trillion or, some said, as high as $49 trillion. Indeed, "Adding Social Security, Medicare and all the other unfunded obligations of the U.S. governments," Casey Research told us in August 2006, "the current [aggregate] debt actually comes in at over $60 trillion - an amount so large, not one person in a million has a real sense of it."

According to United States Treasury Department figures, President Bush borrowed, in his first five years in office, more money than all previous United States presidents together had ever done. The forty-two previous presidents borrowed a combined total of $1.01 trillion from foreign governments and financial institutions. By comparison, between 2001 and 2005 alone, the Bush administration borrowed $1.05 trillion – an all-time record and still rising, it is said, at $1 trillion every 18 months. The only ambiguously comforting consideration was that the real value of the American dollar had grown less each year so, in real terms, the debt was less. In turn, however, the sobering prospect was that the value of the dollar would continue to erode, probably at an accelerating pace especially, for example, in terms of gold, oil and other real commodities.

With debt of a magnitude few of us can readily conceive, with trade deficits of enormous proportions, with a gutted manufacturing sector and the ruthless reduction of the community of skilled factory workers, with a corporate culture that has lost its traditional dedication to real investment, productivity and production in favour of "ownership" and speculative enterprise, the United States appears to be moving rapidly along the road to ruin. The most forbidding of economic crises – with a variety of themes, aspects and complexities – seems to threaten just a short distance down that road from where we are now. If and when it arrives, a turmoil and misery to put the Great Depression of the 1930s to shame could afflict the American economy and the American people – and persist perhaps for a decade or more.

But the menace goes much deeper even than that. The United States has not just participated, as one of the mob, in a malaise that has afflicted everyone, worldwide. Some, especially the Anglo-Saxon countries, have similar problems; but, while they and the United States have been slipping, some other countries have made unprecedented progress in developing their economies and advancing their influence and power in whatever area – economic, social, cultural, political and, most menacing of all, strategic. The United States has itself engineered both its own decline and the elevation of those who might be regarded as its actual or potential rivals. These include China which has, in the last two decades, moved rapidly up the ranks of high economic achievers to lie now fifth among the world's biggest economies. Only the United States, Japan, Germany and possibly Britain are still ahead of the awakening giant. Given the great differences in rates of economic growth, China is likely to move into third position fairly soon and, not many years thereafter, push ahead of Japan, the country that Deng chose as his model back in 1979. Only the United States will then lie ahead – assuming that the American economy, with its several bubbles, does not collapse in crisis even earlier. If present disparate rates of growth continue, China will close the gap in Gross Domestic Product with the United States quite rapidly and, though we cannot give any date, will become the world's number-one economy and will still be growing.

Power accrues to those who know how to navigate efficiently on the stream of time. That efficiency is closely related to economic competence: the ability to manage and grow in real terms on the back of real investment, rising productivity and mounting production. Economic power nourishes other forms of power: political and strategic power in particular. Traditionally, conflicts tend to be related to changes in economic power and the status that economic power confers. The causes that precipitate the conflicts are varied but can include such crucial concerns as access to oil and other vital resources.

On these bases, we could have ahead of us a world in turmoil as the mantle of the world's single superpower falls from the shoulders of the United States and is assumed perhaps by China or a group of countries collaborating together. The Bush Administration has recently been talking to two of its closest allies, Japan and Australia, about the "containment of China". In the same vein, it has been cosying up to India as a possible counterweight to China. Australia is dubious about "containment." Japan seems more responsive; but any ideas of "containment" may now have passed their use-by date. If they were to be effective, they should have been a major influence on policy some time in the last twenty or thirty years when and after Nixon and Kissinger paid their visits to China. To mean anything, "containment" now can only imply a reversal of the American policies that have turned China into a candidate for "containment." Those policies seem already to have done the job too well for their reversal to affect substantially the relative power positions of China and the United States now and, ever more importantly, in the ten, fifteen or twenty years ahead.

The position of India is not so clear-cut. As a late starter, there may still be a rough chance that India can, in some way, be "contained" – whatever meaning may be given to that concept by those who espouse the policy. However, President Bush and his peripatetic Secretary of State seem not yet to have understood the reasons for the scale and speed of India's and China's growth and that they are essentially the same for both. To "contain" India therefore requires the reversal of the same American policies as those that have so miraculously transformed Chinese destinies. In Washington, policy seems not yet to have reached such a stage of thinking; but, in the light of the policy of "containment of China", we may reasonably enquire: how soon will it be before the United States sees India and perhaps others as candidates for "containment" too? When it does, will the present policy of "cosying up" be enough? If India, instead of being "contained", is conceived to be a "counterweight" to China, then the strategic reversal of the policies that made the latter powerful may need to be maintained to keep India on its path of rapid and substantial economic growth. The complexity of the developing power situation would seem to be too much for the present Bush administration and to be a rare challenge for whatever administration might succeed it.

The superpower challenge is of course only one of the challenges facing the United States and other countries around the world. United States policies – which have too often formed a model for others – have intensified almost every problem that humanity has designed or had thrust upon it: the environment, poverty, population growth, racial and religious conflict, commodity issues and the "limits to growth," the dilemmas posed by failed states, the spread of disease, the plunder of the planet's resources with ever more insatiable rapacity and so on. These issues are not only unresolved; they are, in essence though not in some of the empty rhetoric, comprehensively ignored and neglected. Vision has been lost. Enlightenment has vanished. Only more self-destruction – for the United States and, indeed, for all of us - seems to lie ahead.

"America's Suicidal Statecraft" is the story of these developments. It draws a picture of what has gone before, especially during the years since 1969; and suggests ways in which we might find a path out of our current dilemmas. The challenge that those dilemmas pose will be hard to meet. A "soft landing" for the world politically and strategically is as hard to guarantee as a "soft landing" for the American or world economy. However, the stakes are high for the future of humanity and, indeed, for the survival of life on the planet, as well as for individual countries; so high that the challenge is one that we must – as an absolute imperative – take up with all the energy and enlightened vision that we can muster.

And we must do it now.

(4) Chinese banks the most profitable, but Western banks have more Tier 1 Capital

From: The Banker Newsletter <The-banker@ftmail.ft.com>  Date: 16.07.2009 05:56 AM
Subject: July: Top 1000 World Banks // War breaks out over EC hedge fund plans // Indian trade rivalry

Top 1000 world banks 2009

Despite huge losses, Western banks have retained their dominance of the rankings due to massive capital raising. But what will the future hold?
Geraldine Lambe reports

Research by Valentina Lorenzon, Cecile Sourbes and Charles Piggott

http://www.thebanker.com/news/fullstory.php/aid/6703/Top_1000_world_banks_2009.html

The impact of the crisis on bank profits is a central feature of this year's Top 1000 listing,with total profits of the listed banks plunging 85.3% from $780bn to $115bn and return on capital sinking from 20% in 2008's ranking to a paltry 2.69%.

But as banks have written off losses, they have also recapitalised – often with government support – so that total Tier 1 capital has risen 9.7% to $4276bn. Assets have also grown by 6.8% to $96,395bn but at a much slower pace than previous years, with the doubling of the asset base between 2003 and 2008 now clearly visible as a key contributor to the crisis.

What stands out strongly in this year's ranking is that the status quo in banking remains in place. While Chinese and Spanish banks head the table for best profit performance, it is still Western institutions that dominate the upper reaches of the ranking, with the position of some enhanced by crisis-led consolidation.

PROFIT SHOCK

The shocking 85.3% collapse in profits reveals the full extent of the carnage in the global banking system. ...

For the first time in the Top 1000's 39-year history, the top 25 banks – which account for almost 40% of the Top 1000's Tier 1 capital and almost 45% of its total assets – recorded a loss, which totalled $32.37bn (-28.1% of Top 1000 profits).  ...

The worst losses are at the UK's Royal Bank of Scotland, with $59.3bn (including losses attributable to minority interests), followed by the US's Citigroup, with $53bn, and Wells Fargo, which lost $47.7bn. ...

Aside from three new entrants (Goldman Sachs at 13, Morgan Stanley at 17 and Agricultural Bank of China, in at 24 from 71) the Top 25 is composed of much the same institutions as last year, dominated by Western banks with a sprinkling of Japanese and Chinese players. The same US and UK banks have jockeyed for the top five slots: JPMorgan takes pole position, followed by Bank of America, Citigroup, Royal Bank of Scotland and HSBC (see table, Top 25 by Tier 1 capital.)

Even when government capital is removed from the calculation (see table, Top 30 excluding government capital) it does not drastically alter the ranking: JPMorgan and Bank of America retain first and second positions, HSBC rises to third, Mitsubishi UFJ rises from seventh to fourth, and ICBC is lifted from eighth to fifth. Industry consolidation has played a decisive role in three of the top five banks' positions. JPMorgan's takeover of Bear Stearns and Washington Mutual propelled it into first position, Bank of America's acquisition of Merrill Lynch pushed it to second, and Wells Fargo's acquisition of Wachovia enabled it to jump from 23rd to sixth place. UK banks Lloyds and HBOS officially combined too late for the ranking but would have entered the top 25 at 16th just behind UK rival Barclays on consolidated numbers. ...

Some argue that Tier 1 – which in its broadest sense includes equity, preferred shares, subordinated and other long-term debt, goodwill and intangibles – has become so loose as a measure of capital strength that we can no longer by its measurement judge an institution's capacity to absorb losses.

During the crisis, banks collapsed (or came perilously close to collapse) that previously were deemed to be adequately capitalised. In the US, critics argue that the government made its stress tests easy to pass by massaging what qualified as Tier 1.

Moreover, as a result of what the Financial Times' John Gapper calls the "relentless deflation of asset [quality] and inflation of capital [value]" that the banks have engaged in, US banks that the government instructed to raise billions more in capital following the stress tests were, by Basel standards, in rude health.

For example, Bank of America had a Tier 1 ratio of 10.1% in the first quarter of this year, while Citi's Tier 1 ratio was 11.9%. In other words, both had two to three times the minimum ratio of capital.

The Banker's benchmark Top 1000 ranking is based on a much stricter definition of Tier 1 capital than the broadest interpretation. It includes only the core of a bank's strength: common stock, disclosed reserves and retained earnings. It excludes cumulative preference shares, revaluation reserves, hidden reserves, subordinated and other long-term debt; it deducts goodwill (see How we did it). The Top 1000, then, is evidence of the success of the enormous efforts by financial institutions and governments to recapitalise and reinvigorate the banking system.

CAPITAL-RAISING BONANZA

Globally, the financial industry has raised $998.9bn in total bank capital since the crisis began, against a total of $1040.7bn in write-downs and losses. In Europe, capital raising has exceeded losses, at $422.3bn versus $420.7bn, respectively. In Asia, banks have raised $75.9bn against losses of $37.3bn. Only in the Americas have losses outpaced capital raising, with $500.7bn versus $582.6bn (see table of credit write-downs and capital. Note: this includes losses and capital raising from H1 2009, which do not count towards The Banker's 2009 Top 1000).

Individually, many banks have repaired holes and boosted capital on top. Citigroup, for example, has raised a total of $104.3bn against losses of $101.8bn. Barclays has raised $29.6bn against losses of $19.9bn. Our highest new entrant to the Top 1000, Goldman

Sachs, last year raised $5bn in preferred shares by way of Berkshire Hathaway and $5bn in common stock by public offering, in addition to the $10bn in preferred shares taken by the US government – this against losses of $7.9bn. Already this year (which does not count towards the 2009 listing), Goldman has raised an additional $5.75bn and HK$14.86bn ($1.92bn) in common stock in two separate issues.

INCREASING CAPITAL TO ASSETS

More significantly, because regulators and investors have raised the bar in terms of what level of capital is now deemed safe, the capital-to-asset ratio has increased overall, if only marginally. On an aggregate basis, the Top 1000 has increased Tier 1 capital to assets to 4.43% (or 11 basis points). The Top 1000's average capital to assets ratio has increased to 8%.

Within the Top 25 banks, the capital-to-asset ratio has risen overall: 12 have strengthened the ratio and one is level with 2008. Perhaps surprisingly, the two new entrants, Goldman Sachs and Morgan Stanley – which only last year converted to bank holding companies – have the highest capital-to-asset ratios of the Top 25, at 7.08% and 7.68%, respectively.

A change to accounting rules would lift the capital-to-asset ratios even further for the 365 European banks in the Top 1000, because IFRS (international financial reporting standards) inflate European banks' balance sheets relative to US banks operating under GAAP (generally accepted accounting principles) by allowing much less netting of derivatives. ...

Like Tier 1, assets have grown by 6.8% this year, to $96,395bn. There is little change to the top 10 banks by total assets. Despite shrinking its assets by 8%, the ranking is still led by Royal Bank of Scotland with $3500bn in assets as a result of its ill-fated ABN Amro acquisition; if RBS pares down its business as it has suggested this year, we can expect the bank to slip down the list in 2010's ranking.

But there are three new entrants to the top 25 by assets this year, notably two Chinese banks. Agricultural Bank of China enters at 22, and Bank of China at 23. Again, Well's Fargo's acquisition of Wachovia propelled it into the Top 25 by assets for the first time, at 18 (see table, Top 25 by total assets). ...

Looking at profitability of the Top 1000 from a global perspective, the winners have been those banks that stuck to the basics of banking – taking deposits and lending in their home markets.

China has five banks in the Top 25 by pre-tax profits, and three banks in the top three – more than any other country. Industrial Bank of China leads the ranking with $21.2bn, followed by China Construction Bank with $17.5bn and Spain's Santander with $15.8bn (see table, Top 25 by pre-tax profit). ...

For those who posit the notion that the crisis is just one more marker in the shift of power and profitability from West to East, the Top 1000's aggregate country performance is very revealing. China's banks are way out in front, with aggregate pre-tax profits of $84.5bn. Japan comes second with $16.5bn and Brazil third with $11.7bn.

WESTERN LOSSES

It was a very different story in the West: US banks made an aggregate loss of $91bn, the EU 27 an aggregate loss of $16.1bn, and the UK's banks lost, on aggregate, $51.2bn. In terms of return on capital (ROC), the disparate fortunes of the world's banks is equally as startling. On aggregate, China's banks in the Top 1000 chalked up an ROC of 24.38%. This compares with an aggregate ROC of -15.32% for UK banks and -10.32% for US banks. Japan's banks in the Top 1000 achieved an ROC of 4.43% and Brazil's 15.98%.

The inexorable rise of Asia, excluding Japan, is also played out in the composition of the Top 1000. The number of banks in the rankings from Asia has risen from 174 two years ago to 193 this year, as the number of banks from the US has dropped from 185 to 159, and from the EU 27 from 279 to 258.

The forward march of China's banks in the Top 1000 is also reflected in their market capitalisation as of July 8 (see Top 25 by market capitalisation). Chinese banks still occupy the top three positions, led by ICBC in the top spot; ICBC, alongside Bank of China (up from fourth last year), managed to grow its market cap during the past year. HSBC, JPMorgan, Wells Fargo and Bank of America are fourth, fifth, sixth and seventh, respectively. Helping to shake-up the lower reaches of the Top 25 are three Canadian banks – led by Royal Bank of Canada, up 11 places to ninth – and three Australian banks, led by Commonwealth Bank of Australia, new to the Top 25 at number 12.

THE FUTURE

It is hard to argue against the idea that the rise of Asian banks, led by China, signifies a continued reordering of world finance – especially when as it runs alongside the growing economic importance of the region. With their vast domestic market, huge liquidity and supportive government policy, Chinese banks are the natural eventual successors to the US crown. The reality is that there are four Chinese banks in the Top 25 – three of them in the top 13 – whereas six years ago there were none. But it is far too early to write off US banks – or European banks such as HSBC and Banco Santander – which still dominate the ranking in terms of size and strength, if not all in profitability. ...

The issue of bank capital will be high on the political and regulatory agenda for some time to come as policy makers seek a formula that both reins in excess but frees up banks to play a full role in economic growth. If regulators decide that only equity qualifies in the broadest definition of Tier 1, this could lead to further deleveraging by the banks and a knock-on effect in the broader economy at a time when lending is already scarce.

Bankers are lobbying hard that more innovative forms of Tier 1 still have a role to play in bank capital structures. They argue that a tiering of capital is perfectly valid, allowing for better return on equity and alignment with liquidity. ...