Chicago learned in January that the headquarters of its largest bank would be leaving town, but that road was paved long before J.P. Morgan Chase & Co. agreed to buy Bank One Corp., according to a new analysis.
Laws that once severely limited the growth of banks in Illinois prevented financial institutions based here from gaining the financial heft necessary to compete in an era when banks would stretch from coast to coast, the study found.
Later, “when nationwide banking became legal, in the mid-1990s, Chicago banks were at a disadvantage because they lacked the critical mass and experience to participate fully in the wave of acquisitions that followed,” senior economists Robert DeYoung and Thomas Klier write in a new analysis for the Federal Reserve Bank of Chicago.
“Today the largest U.S. banks are located in international banking centers, such as New York and San Francisco, where … economies are strong and high demand for financial services has allowed even purely local banks to grow large,” they found.
Banks in states such as California, home of banking giant Wells Fargo & Co., and North Carolina, where three of the nation’s 12 largest banks are based, are benefiting today from the lack of growth restrictions in the past, according to the analysis.
Foreign companies bought Chicago’s second- and third-largest banks years ago. LaSalle Bank Corp. became part of Dutch-owned ABN Amro in 1979, while the parent of Bank of Montreal has owned Harris Bank since 1984.
The loss of Bank One’s headquarters means “Chicago will lose a considerable number of capital markets and other bank-related jobs,” DeYoung and Klier write.
But the impending departure of Bank One’s headquarters is not a sign that Chicago’s time as a financial center is ending.
“Indeed,” they write, “Eurex’s decision to locate its new all-electronic derivatives exchange, Eurex US, in Chicago indicates otherwise.”
Asian relations grow: The nation’s largest futures exchanges continue to strengthen their relations with Asia as part of their long-term growth plans.
The Chicago Board of Trade and the Tokyo Grain Exchange signed a memorandum of understanding this week, promising to share information about new products and contract specifications.
They will also jointly study new products and marketing efforts.
The Shanghai Futures Exchange agreed to license the Chicago Mercantile Exchange’s system for calculating performance bond requirements. The deal grew out of an agreement to work together, which the Merc and the Shanghai exchange reached last year.
According to the Merc, its standard portfolio analysis of risk system was the first in the industry to calculate requirements exclusively on the basis of overall portfolio risk.
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Midwest Banc agreement: Midwest Banc Holdings Inc. has signed an agreement with the Federal Reserve Bank of Chicago and the Illinois Office of Banks and Real Estate that is intended to correct problems regulators have found with some operations at the bank, including risk management policies.
Regulators found problems during a review last year. The bank, based in Melrose Park, was ordered to add to its loan-loss provisions. The bank also had to restate its 2002 earnings.
Numerous changes have been made since the review, said Brad Luecke, president and chief executive.
The agreement includes changes to the bank’s risk management procedures and requires hiring a consultant to review some procedures, Luecke said.