The nation’s largest banks, with combined holdings equal to half of the U.S. economy, represent a “clear and present danger” and must be broken up.

 

This alarmist conclusion is not the work of a consumer advocate or a liberal critic of Wall Street. No, this assessment comes out of Dallas, Texas, and the local arm of the Federal Reserve.

 

In its 2011 annual report, the Dallas Fed notes that more than half of the banking industry’s assets belong to just five institutions, those often referred to as “too big to fail” (TBTF). Furthermore, the 10 top banks account for 61% of commercial banking assets, and ‘their combined assets equate to half of our nation’s GDP.”

 

Written by Harvey Rosenblum, executive vice president and director of research for the Dallas Fed, and approved by Dallas Fed president Richard W. Fisher, the report points out that “The term TBTF disguised the fact that commercial banks holding roughly one-third of the assets in the banking system did essentially fail, surviving only with extraordinary government assistance.” Too big to fail perverts the concept of capitalism in the United States because Capitalism requires the freedom to succeed and the freedom to fail. Hard work and good decisions should be rewarded. Perhaps more important, bad decisions should lead to failure—openly and publicly.”

 

The report goes on to warn, “TBTF institutions were at the center of the financial crisis and the sluggish recovery that followed. If allowed to remain unchecked, these entities will continue posing a clear and present danger to the U.S. economy.

 

“As a nation, we face a distinct choice. We can perpetuate TBTF, with its inequities and dangers, or we can end it. Eliminating TBTF won’t be easy, but the vitality of our capitalist system and the long-term prosperity it produces hang in the balance.”

 

The big five banks and bank holding companies are JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs.

-Noel Brinkerhoff, David Wallechinsky

 

Choosing the Road to Prosperity: Why We Must End Too Big to Fail—Now (by Harvey Rosenblum, Federal Reserve Bank of Dallas) (pdf)