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New York's 10 Most Important Banks

How big is "too big to fail"? In the great state of New York, it's pretty darn big.

In fact, in some places "2B2F" is pretty darn near to "too big to compete with."

Meet your banker -- whether you like it or not
A recent report out of the Federal Deposit Insurance Corporation tallied up the size of bank deposits among New York's 10 top banks, giving a good picture of who owns what kind of "customer real estate" in the New York banking market. The results may surprise you.

Data from the New York Fed, current as of June 2012.

See that big green line of billion-dollar bills down there at the bottom? That's JPMorgan Chase's (NYSE: JPM  ) deposit base -- and it's bigger than the next seven banks above it, combined -- including fellow 2B2Fers Citigroup (NYSE: C  ) and Bank of America (NYSE: BAC  ) .

According to the FDIC's figures, JPMorgan boasts a 36.9% market share in the state of New York. That's more than four times the share of the state's No. 2 bank, Bank of New York Mellon (NYSE: BK  ) .

An important thing to remember
What explains these banks' popularity? In a sense, they're probably at least partially "popular for being popular." They're New York's 10 most important banks precisely because of their size. Because with great size comes great ease of access for their customers -- more branches, more ATMs, more ability to hit a JPMorgan signpost with every swing of a dead cat.

On the other hand, I'm not so sure that the banks' great size will always be a good thing for their investors.

Think about it. Having great size, and benefiting from the "network effect" among its customers, banks like JPMorgan look like good, safe, defensive investments. Absent a major self-inflicted wound, it should be very hard to unseat them from their dominant positions.

On the other hand, once you've attained 37% market share, where do you go from there? Growing the business by expanding market share gets progressively harder as the numbers get bigger, and in the long run, a really big bank seems likely to grow in lockstep with population growth in its home market. (Although really big banks generally have other markets to expand in, too).

Forget the "1%." These are the 4%.
But what about the banks that are not too big to fail? By definition, the possibility of failure makes smaller banks seem riskier investments. But possessed of the ability to grow with the population, through acquisitions, and by stealing market share from the incumbents, they're potentially more rewarding investment options -- and they do exist. A relative small fry such as New York Community Bancorp (NYSE: NYCB  ) , for example, doesn't even register on the FDIC's top 10. But with a modest P/E ratio of 12, and a generous 7.3% dividend yield, you can bet NYCB registers with investors.

In fact, FDIC records show a total of 231 such smaller banks operating in New York. They just don't have as big piece of the pie as the top 10, which, despite representing just 4% of the total number of banks in the state, control 76% of the banking deposits in the state -- three out of every four customer dollars.

Are you ready to rumble?
That's a tough market to crack, no doubt. This may be why, over the past two and a half years, a grand total of one -- one! -- new bank was formed in all of New York. But for small banks, and small bank investors willing to accept the challenge, there's a big prize to shoot for.

Namely -- three out of every four depositor dollars, and you know where to look for them.

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