Banks 'Too Big to Fail' Have Grown Even Bigger

Giant zombie banks... still a problem.

Banks 'Too Big to Fail' Have Grown Even Bigger
http://www.washingtonpost.com/wp-dyn/content/article/2009/08/27/AR2009082704193.html?hpid%3Dtopnews%26sid%3DST2009082http://www.http://www.washingtonpost.com:80/ac2/wp-dyn?node=admin/registration/register⊂=AR">The Washington Post



When the credit crisis struck last year, federal regulators pumped tens of billions of dollars into the nation's leading financial institutions because the banks were so big that officials feared their failure would ruin the entire financial system.

Today, the biggest of those banks are even bigger.

The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit.
ad_icon

J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.

A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected.

"It is at the top of the list of things that need to be fixed," said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. "It fed the crisis, and it has gotten worse because of the crisis."

http://www.washingtonpost.com/wp-dyn/content/article/2009/08/27/AR2009082704193.html?hpid%3Dtopnews%26sid%3DST2009082http://www.http://www.washingtonpost.com:80/ac2/wp-dyn?node=admin/registration/register⊂=AR">More...

'We the People' save their miserable asses with bailouts and then the banks turn around and hike interest rates and fees.

...so that if some of the newly smaller banks fail, the impact is less.

Instead, the federal gov't encouraged even more mergers.

Viewpoint: Dismantle, Don't Enable, 'Too Big to Fail' Firms
American Banker | Tuesday, June 16, 2009

By Sen. Tim Johnson


After this country's financial system was shaken to its very moorings, federal policymakers are about to make legislative prescriptions that we hope will ensure that the events of the past nine months are not repeated anytime soon, if ever.

As we all know, federal regulators were forced to make unpopular decisions based on the belief that weakened financial firms were so big and so interconnected that their failure would devastate the world economy. They were perceived to be, in a phrase, "too big to fail," and thus we bailed them out with tens of billions of dollars in taxpayer funds.

Just look at the events of last fall and the collapse of the credit markets after the Lehman Brothers bankruptcy filing. Hundreds of thousands of unresolved contracts illustrate the pain involved in a hands-off approach. By the time we were faced with the meltdown at American International Group, we were told a bailout to avoid the bankruptcy liquidation of credit default swaps around the globe was the only choice. AIG was simply "too big to fail."

It's my view that we would be much better advised if we simply dismantled gigantic, troubled firms instead of bailing them out. Currently, however, regulators lack the necessary tools to close large nonbank financial firms, and there is no easy way to dismantle a company the size of AIG. We must correct that oversight and provide for a meaningful resolution mechanism that can unwind, not prop up, failing firms.

A solution may be closer than we think if we simply look to the FDIC. We already have an effective process for closing banks, one that historically hasn't cost the American taxpayers any money when a bank needed to be shut down. We should build on this tried-and-true model to create consistency between bank and nonbank financial institutions. We need to update our laws to reflect the fact that nonbanks, as well as banks, create systemwide risks...cont'd

http://www.americanbanker.com/issues/174_119/-381715-1.html