Remember that too-big-to-fail problem we had when a bunch of banks started failing last year? We solved it in an interesting way: by making a bunch of banks bigger by helping them eat banks that would otherwise have failed. As David Cho explains in a great story this morning, the result is now a much-too-big-to-fail problem. "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," writes Cho. The same goes for Bank of America and Wells Fargo.
There's actually a rule against allowing that, but the rule was waived during the crisis. Antitrust guidelines preventing this level of concentration were set aside as well. As such, we're not only dealing with the lethal risk to the economy, but the more prosaic concerns of a market in which consumers have few choices and the players have too much power. Geithner promises that heavier capital requirements will solve the first problem and better financial regulation will solve the second, but it's hard to see how. The problem, in part, is that when a bank is much too big to fail, it's also much too powerful to politically oppose. And as we get farther and farther from the crisis itself, the congressional will becomes weaker and weaker ...
August 28, 2009; 12:14 PM ET
Categories: Financial Regulation , Solutions
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