It’s easy to be cynical about Wall Street reform. Nothing ever changes. The big banks get bigger and more powerful than ever. Too Big to Fail is worse than ever.  Well, maybe. We won’t really know if too big to fail has been fixed until a major institution gets in trouble and turns up at the Treasury secretary’s doorstep looking for help.  But at the same time, it’s wrongheaded to suggest that nothing has changed and that giant banks are carrying along on their merry way, endangering the economy and waiting for their bailouts. For evidence, take a look at numbers posted by Citigroup on Monday in this week in which several major banks are releasing financial results.  Sometimes it is good to take these abstract debates about financial reform and the role of banks in our economy and look at them through the vantage point of cold, hard numbers on a balance sheet. And if you need an exemplar for a bank that is “too big to fail,” the first choice would surely be Citi.  Sure, JPMorgan may be bigger, and Goldman Sachs might be more associated with hot-shot Wall Street dealmaking. But Citigroup has a mixture of immense size ($1.9 trillion in assets); incestuous ties to the government (both the current Treasury secretary and the vice chairman of the Federal Reserve are former Citi executives); and sprawling reach that makes it hard to manage. (Just this year, the Fed rejected Citi’s plan to return capital to shareholders because the regulators doubted the bank’s ability to project how its international businesses would fare in a downturn.)  Return on total equity, Citigroup, by quarter  Return on total equity, Citigroup, by quarter  Oh yeah, and during the 2008-9 bank bailouts, Citi received cash and guarantees worth almost half a trillion dollars, more than any other institution.  Let’s compare the state of Citigroup’s finances in the second quarter of 2014 with the second quarter of 2007, when some early cracks in the financial system were starting to appear but big banks and the financial system as a whole still appeared solid.  Our mid-2007 vintage Citigroup had $2.2 trillion in assets on its balance sheets: loans, securities and the like, which have fallen to $1.9 trillion. That’s a 14 percent drop, not even accounting for inflation. Seven years ago the bank’s assets were equivalent to more than 15 percent of the United States’s annual G.D.P.; now that’s down to around 11 percent.  But there has been another, perhaps more important, shift in Citigroup’s balance sheet. Back in 2007, only 37 percent of its liabilities were customer deposits — generally considered among the most stable sources of funding for a bank. Back then, most of its funding came from other sources, including $394 billion in short-term securities: “repurchase agreements,” also known as “repo.”  If that sounds familiar, it’s because it is the variety of volatile, short-term funding for financial institutions that was one of the causes of near-failure of major banks back in 2008. Lehman Brothers was ultimately undone, for example, because it could not continue to raise money through the repo markets.  Deposits in the most recent quarter accounted for 57 percent of Citigroup’s liabilities. Repo funding has fallen by more than half, to $184 billion. Another source of risk, “trading account liabilities,” is also down sharply. In other words, not only is Citigroup smaller than it was seven years ago, but it also finances itself through more stable sources that are less prone to runs.  What makes banks risky is their use of leverage — borrowed money. They have a thin sliver of equity that acts as the cushion against losses. What happened in the crisis was that bank losses were so great as to wipe out that sliver of equity and leave the banks at risk of shortchanging creditors and depositors.  A look at the 2007 balance sheet shows just how thin that cushion was back then. Using the most basic measure, the bank had only $128 billion in equity against total assets of $2.2 trillion, or only 5.8 percent. That has risen to $211 billion, or 11 percent of the current balance sheet. There are much more complex ways of measuring capital levels that the bank must calculate to comply with international capital standards set by regulators who meet in Basel, Switzerland. They, too, show a considerably plumper equity cushion.  There are plenty of arguments about what capital levels for giant banks ought to be and how they should be calculated. Anat Admati of Stanford University, for example, argues that they need to be radically higher to ensure a stable financial system. Bankers and their allies want them to be as low as possible, which would provide greater returns to bank shareholders but generate greater risk of failure. But what is beyond dispute is that Citigroup and the other megabanks are significantly better capitalized today than in the years before the crisis.  Then there is the question of Citigroup’s operations. The big news for the company on Monday was that it had reached a $7 billion settlement with the Justice Department over its packaging of what turned out to be faulty mortgages in the period just before the crisis.  As happens when any such settlements are announced, there was the usual back and forth over whether it went far enough to punish wrongdoing and whether enough of the money will end up helping victims of predatory lending. But it is a simple fact that, even for a bank the size of Citi, $7 billion is a lot of money. The settlement necessitated a $3.8 billion charge to its second-quarter earnings, which basically wiped out any profit for the quarter.  Citigroup’s net income was only about $4 billion in the second quarter, in line with recent quarters. Back in the second quarter of 2007, net income was $6.2 billion.  But that actually understates the decline in Citigroup’s profitability since before the crisis. Remember, it has more capital now than it did then. More capital plus lower earnings equals sharply lower return on that capital.  Finally, there are jobs and salaries. A common critique of pre-crisis Wall Street is that it was bloated with too many workers earning too much money relative to the overall economy. At Citigroup, at least, the numbers point to that being less true today. The bank spent $8.9 billion on employee compensation and benefits in the second quarter of 2007, which was down 32 percent to $6 billion in the second quarter of this year. Citi employed 244,000 people in the latest quarter, compared with 374,000 in 2007.  None of this means that Citigroup, or Wall Street more broadly, is fixed, or that a financial crisis can never happen again. But it is an important backdrop to the debate over where financial reform should go next. It just may be that the biggest risks to a stable financial system aren’t lurking on the balance sheets of giant banks like Citi, but in corners of the financial world with less regulation and less scrutiny.  An earlier version of this article misstated the amount of Citigroup funding represented by repurchase agreements in 2007. It was $394 billion, not $394 million.
The bank is still huge, but smaller than it used to be. Its earnings are smaller, too, and less subject to volatility.