Too Big to Fail Now Even Bigger

Lawmakers are taking another look at the regulations that promised to put an end to the “too big to fail” financial institutions.

The 2010 Dodd-Frank Act was put in place to do just that after Lehman Brothers Holdings Inc. proved to have such an impact on the economy that its collapse pushed the U.S. over the edge and into a recession.

But many are starting to think that Dodd-Frank failed to accomplish what it promised. The “too big to fail” institutions are now even bigger.

And concern is spiking as these banks prove that. JPMorgan Chase & Co.'s $6.2 billion trading loss in 2012 is just one example of that.

From Bloomberg:

That loss is among events that “have proven 'too big to fail' banks are also too big to manage and too big to regulate,”[Senator Sherrod] Brown, an Ohio Democrat, said in a Jan. 22 e-mail. “The question is no longer about whether these megabanks should be restructured, but how we should do it.”

Brown is one of the leaders in the move to revisit this megabank problem, along with Federal Reserve Governor Daniel Tarullo and Dallas Fed President Richard Fisher. The three want to go further than Dodd-Frank to ensure these banks are limited.

And it's a bipartisan effort, one of the few that exist lately. Republicans and Democrats alike are proposing things such as higher capital levels for big banks than the standard set by the Basel Committee on Banking Supervision and the Financial Stability Board, or setting requirements for the levels of long-term debt the banks must hold.

JPMorgan, Bank of America Corp., and Wells Fargo & Co. have all grown larger since 2007. Bank of America's assets are now $2.21 trillion from $1.58 trillion, and JPMorgan's assets have risen from $1.48 trillion to $2.36 trillion.

Some believe breaking up these banks might be the best solution, while others would like to keep it less extreme and put caps on the institutions. Either way, the consensus seems to be almost universal: too big to fail needs to end.